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Hope?...kind of OT: Outlook brighter for SemGroup Energy Partners

By ROD WALTON World Staff Writer
Published: 4/8/2009 6:54 PM
Last Modified: 4/8/2009 6:54 PM
http://www.tulsaworld.com/news/article.aspx?subjectid=298&articleid=20090408_298_0_SemGro582214

SemGroup Energy Partners LP, which was reeling for eight months under the impact of the parent company’s bankruptcy and its own credit default, is headed in the right direction from this week on, CEO Kevin Foxx said Wednesday.
The publicly traded, independent subsidiary of bankrupt SemGroup LP has been granted a long-term waiver on its banking agreement. The new deal allows SemGroup Energy Partners, also known as SGLP, to borrow additional funds under its revolving credit facility.

The Tulsa-based oil and asphalt storage and transportation company was prevented from borrowing under a series of three-month forbearance agreements with senior lenders beginning last year. SGLP went into credit default last summer as its parent company filed for Chapter 11 bankruptcy protection.

The new deal with SGLP’s bank group and a transfer of assets with SemGroup LP has given Foxx a more optimistic outlook.

“The completion of these transactions allows us to refocus our efforts in our crude oil and liquid asphalt cement terminaling, storage and transportation businesses independent of the private company,” Foxx said in a statement announcing the new credit extension through June 2011. “We want to express our thanks and gratitude to all of our employees who have worked tirelessly and endured these past months of uncertainty.

“We are now prepared to move forward in a positive manner as we continue to stabilize and strengthen our business.”

The public SemGroup still owes $433 million on loans, according to reports. Currently, SGLP has $29 million in cash on hand

and unused credit.
In exchange for the two-year extension, SGLP is required to make minimum quarterly amortization payments and mandatory prepayments whenever cash on hand exceeds $15 million, according to the release. The banking group also would receive 100 percent of any assets sales and annual prepayments with half of any excess cash flow.

SemGroup LP previously accounted for more than 80 percent of SGLP’s annual revenue through a fee-based storage and terminaling throughput agreement. The onetime partners began battling in court last year after the bankrupt parent company failed to meet its end of the throughput, and SGLP was forced to find other third-party contracts for storing and moving oil and asphalt.

SemGroup’s collapse sent SGLP into its own downward financial spiral, although the public company so far has avoided bankruptcy itself. SGLP did not release an earnings report for 10 months, but a report made public in March indicated that the public company had generated an additional $16 million in third-party revenue by the fourth quarter of 2008.

“We are also grateful to our loyal customers who have continued to trust us and utilize our services, helping us earn our independence from the private company,” Foxx said.

SemGroup LP and SGLP have completed their own swap of assets in a settlement reached last month, officials said. Some Kansas crude oil storage was transferred to the SemCrude unit’s possession, while SGLP gained ownership of 355,000 barrels of crude oil tank bottoms and line fill.

The two SemGroups also have entered into a new terminaling agreement, according to the release. SGLP will provide asphalt terminaling and storage services for SemGroup’s remaining asphalt inventory until Oct. 31.

SemGroup is winding down or selling the remainder of its SemMaterials asphalt unit that was not transferred to SGLP. Last week the parent company began laying off SemMaterials employees nationwide, including 20 in Tulsa, according to reports.

SGLP is moving toward full independence from the private parent company but currently still shares some services. Hedge funds Manchester Securities and Alerian Capital Management gained board control last summer after a loan default.

SemGroup and SGLP officials are still awaiting a U.S. examiner’s report by former FBI Director Louis Freeh. His Freeh Group International was appointed by a Delaware bankruptcy judge to investigate the possible reasons for the parent SemGroup’s financial collapse, from trading strategies to insider transactions to alleged misuse of funds.

The U.S. Securities and Exchange Commission also has been looking into SGLP’s disclosures regarding the financial health of its parent company. Shareholders have filed class-action petitions alleging that SGLP did not inform them of SemGroup LP’s liquidity crisis prior to public stock offerings.

SemGroup Energy Partners was delisted from the Nasdaq stock market in February after missing three deadlines to file quarterly financial reports. The public SGLP is now traded on the “pink sheets” electronic market and was selling for $3.80 per unit as of Tuesday.