Tulsa World: SemGroup files plan to reorganize

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SemGroup files plan to reorganize
The Tulsa energy company hopes to emerge from bankruptcy this fall.

By ROD WALTON World Staff Writer
Published: 5/16/2009 2:23 AM
Last Modified: 5/16/2009 9:07 AM

Read previous stories and court filings about SemGroup.

View a PDF of SemGroup's reorganization.

View a PDF of the disclosure statement.

A reorganized SemGroup LP would employ about 1,000 people, keep operating most of its current business units performing oil and gas storage and transportation services, and stay based in Tulsa, according to a plan filed Friday night in the company's Delaware bankruptcy case.

SemGroup hopes to become a publicly traded company by offering $2.27 billion in equity and cash to pay back some of what it owes creditors. The business is seeking creditor approval of its reorganization plan by September, according to the court filing.

And while SemGroup wants to keep its name and hometown status intact, the bankrupt firm's planners admitted it would struggle with high debt and a hard road ahead in a volatile energy industry. In fact, the reorganized SemGroup could still owe about $625 million in secured and unsecured debts, according to the plan.

"Significant amounts of cash flow will be necessary to make payments of interest and repay the principal

amount of such indebtedness," the reorganization disclosure statement reads.

Yet optimism seemed to rule the day Friday as SemGroup revealed its plans to retain most of its units such as SemCrude, SemStream, SemGas and SemCan, among others. The parent company also plans to emerge out of bankruptcy with $500 million in a new revolving credit facility and an additional $300 million issued in secured notes.

The big changes atop SemGroup will be in ownership. Secured creditors such as banking groups will hold more than 90 percent of SemGroup's equity interest, according to reports.

Previous equity holders, including co-founder and former CEO Tom Kivisto, will own nothing unless they can prove secured or unsecured claims against the company.

"The filing of the plan and disclosure statement is a major milestone in SemGroup's restructuring," CEO Terry Ronan said in a statement. "The plan will allow SemGroup to exit bankruptcy with a stronger balance sheet, reduced debt and more efficient operations."

SemGroup met its deadline for exclusive reorganization rights by filing late Friday. The company has until Sept. 18 to gain creditor approval.

The company is winding down its SemMaterials asphalt unit but expects to maintain its other operations, including terminal services in Cushing and Glenpool and the 525-mile White Cliffs Pipeline project from Colorado to Cushing.

The company, however, will seek refinancing of its $120 million secured credit facility used to partially fund White Cliffs. The previous loan was at the center of court actions against the SemCrude Pipeline subsidiary, with plaintiffs alleging that the company misused the funds to help meet margin calls on oil futures transactions.

SemGroup filed for Chapter 11 bankruptcy protection July 22 after admitting at least $2.4 billion in losses on the oil futures trades. The U.S. examiner who investigated the company's collapse has alleged that Kivisto and fellow SemGroup co-founder Gregory Wallace hid a risky trading strategy from creditors and investors, and also misused company funds to pay themselves millions in bonuses.

Kivisto, who was replaced as CEO last summer, previously owned close to 16 percent of SemGroup, according to a May 2008 investors report. The Carlyle/Riverstone and Ritchie Capital Management hedge funds owned 29 percent and 25 percent, respectively. It was not known what stake, if any, Kivisto or those investors would have if and when SemGroup emerges from bankruptcy. Only creditors will receive shares of SemGroup, according to reports.

In fact, the company alleges that Kivisto owes it more than $300 million for failed trades funded on behalf of his personal company, Westback Purchasing Co., according to reports.

The secured creditors could include primary lenders such as Bank of America, while unsecured creditors could be vendors and oil and gas producers who are owed money for products and services sold to SemGroup before the bankruptcy. The company reportedly owes producers between $400 million and $1 billion.

Reorganization documents indicate that producers could receive up to 100 percent of their claims. Overall, creditors would be paid back about 40 cents to 50 cents on the dollar, according to figures used in the report.

SemGroup also does not anticipate any further layoffs, except for those employees let go in the SemMaterials wind-down, according to reports. The parent company laid off about 200 people last summer and an additional 200 with SemMaterials earlier this year.

SemGroup now employs slightly more than 200 people in Tulsa and about 1,360 companywide, according to reports. It plans to trim down to a total of about 1,000 employees once the SemMaterials sale and wind-down is complete, according to the court document.

Some employees would receive incentive payments for helping SemGroup through the restructuring, even if they were transferred or laid off from SemMaterials, court records show.

"I would like to thank all of our talented employees who have worked so hard to make this plan possible and ensure SemGroup's place atop the industry for years to come," Ronan said. "While we have accomplished much, there's still a lot of work ahead of us. We all need to remain focused to make the restructuring a success."

SemGroup sought court approval earlier this week for a search firm to help find a CEO, chief financial officer and six new board of director members for the emerging, reorganized company before the end of the year. Kivisto and Wallace had served as CEO and CFO, respectively, from SemGroup's founding in 2000 until its bankruptcy.

The Securities and Exchange Commission and other federal authorities are investigating SemGroup's collapse. A shareholder lawsuit also is looking into whether publicly traded SemGroup Energy Partners gave adequate information about the financial health of its parent company and whether those stock offerings were held to cover financial losses.

SemGroup Energy Partners, known as SGLP, is now a separate company from SemGroup LP. Hedge funds Alerian Capital and Manchester Securities took control of SGLP after the parent SemGroup defaulted on a loan last summer.

It was not known how the reorganization plan would affect John Catsimatidis' bid to lead SemGroup out of bankruptcy. The New York supermarket magnate took control of SemGroup's management committee last year but has been unable to deliver his own specific plan and is in a legal fight with SemGroup's current executives.

A Catsimatidis spokesman said the investor would not comment until he had seen details of the plan.

Kivisto's attorney, John Tucker, said he would not be surprised if current equity holders are zeroed out in a Chapter 11 reorganization. Making the plan work for future equity holders may be a challenge, he noted.

"It's easy to say that we'll convert debt to equity," said Tucker, who had not seen the plan when interviewed Friday afternoon. "Creditors have to agree to it."

Kivisto and Wallace have denied any wrongdoing. The third SemGroup co-founder, Kevin Foxx, is CEO of SGLP, which did not file for bankruptcy protection.

SemGroup may only be 9 years old, but it became one of the largest private firms in the United States. Revenues totaled more than $14 billion by 2007 as SemGroup acquired dozens of other energy gathering, storage and transportation assets.

Kivisto and the company also became known for local philanthropic efforts. SemGroup sponsored the LPGA women's professional golf tournament in Tulsa last May, only two months before the bankruptcy.

Kivisto's alleged focus on maintaining a short position in the oil futures market— betting that prices would fall or return to normal ranges — eventually unraveled SemGroup's finances as oil shot up to $147 per barrel last summer, according to reports.

SemGroup reorganization by the numbers

$2.27 billion: amount creditors receive in equity and cash.

$0: amount previous equity holders get unless they have debt claims.

$500 million: in exit financing to make a fresh start

$300 million: new secured notes issued to creditors

Third quarter: period this year when SemGroup hopes to exit bankruptcy.

Source: Bankruptcy court filing.

Rod Walton 581-8457
rod.walton@tulsaworld.com By ROD WALTON World Staff Writer

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Some reader comments for this story were copied from "SemGroup hopes to emerge from bankruptcy intact, according to reorganization plan," which was published on 5/15/2009.

	Report Comment zzx375, BA (5/15/2009 9:56:10 PM) "court and creditor approval" This case but not all of them lately.
	Report Comment OKBackbone42, (5/15/2009 10:25:07 PM) Meeting that deadline set by Shannon was huge for SemGroup. If the Delaware court approves this, we might have something going. That is great for SemGroup and its employees, and even better for Tulsa.
	Report Comment black gold, (5/16/2009 12:09:19 AM) Hey Mr. Ronan: I guess all of those employees riffed over the past 8 months were the "untalented" employees. Thanks for all the hard work you and ALix partners did in delaying SemMaterials sale until it had lost 2/3 of their employees and the sale price dropped to pennies on the dollar. A special thanks to the experts at Alix Partners for publishing my name and bank account record in the bankruptcy filing. It was real exciting to see $10,000 fly out of my bank account in some fraud scheme while I was unemployed. Funny what $795/hour of expertise can get a company these days. But then, these are the "talented" employees Ronan is so fond of.
	Report Comment Graychin, Eucha (5/16/2009 12:15:34 PM) There is a big difference between hedging and gambling. Someone bet the company on oil futures and lost. Better luck next time.
	Report Comment O&Gtrader, ft. worth (5/16/2009 2:27:59 PM) In the energy business, experience shows us that when hero worship and poor risk management skills mix together a financial trainwreck soon follows. See Amaranth, Barings Bank and Enron for a few examples. Based on my many years of observing energy traders, If I was a lending institution these days, I would have a loan analysis program based on a ratio called the "Legend and Loan Ratio" which would simply be calculated as "the larger the personal legend, the smaller the loan."
	Report Comment Courage, bartlesville, home of the late BYD (5/16/2009 7:14:38 PM) Unless Semgroup has in with the gov't, who is going to sponser the IPO?
	Report Comment O&Gtrader, ft. worth (5/17/2009 1:12:54 PM) Thanks to the TW for the pdf copy of the disclosure and reorganization statements. It's interesting to see how the lawyers have reduced the SemGroup financial collapse to three paragraphs or so on page 42 of that document. Also, I noticed in the disclosure the interesting statement that the Department of Justice had "stayed" its request for documents from SemGroup while the CFTC and SEC are still working with SemGroup to get other information.
	Report Comment Tulsa World Staff Writer Rod Walton, Bartlesville (5/18/2009 9:50:08 AM) Courage, I just returned from out of town Monday so I apologize for being late in responding to your comment. There will no IPO when SemGroup goes public, according to the information I have. The shares will based on whatever stakes the secured and unsecured creditors have. If all works out, it will simply become a public company traded on the exchange, but without the IPO. Thanks for reading. Rod Walton
	Report Comment Courage, bartlesville, home of the late BYD (5/19/2009 8:31:46 PM) who will establish their value, the same ones that said the second offering by SGLP was for all the asphalt terminals?
	Report Comment Tulsa World Staff Writer Rod Walton, Bartlesville (5/20/2009 3:49:34 PM) Courage, I'm told, on background, that the market will assign value to the shares. More specifically, page 103 of the reorganization disclosure statement indicates 100 million shares will be assigned. I know they also talk about $2.27 billion in equity and cash value to creditors, but I don't know if that will affect the stock value. One thing for certain: if traders think the value is too high, they'll bring it down pretty fast, and vice versa. We've all seen it recently. Rod

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