SemGroup hopes to emerge from bankruptcy intact, according to reorganization plan
BY ROD WALTON World Staff Writer
Friday, May 15, 2009
5/15/09 at 11:39 PM
Complete coverage: Read all the stories and documents related to the SemGroup collapse.
Privately held SemGroup LP hopes to emerge from Chapter 11 later this year with its name and business intact, most of its employees still on board and buoyed by $500 million in new revolving credit, according to details of the prospective reorganization plan released Friday in the Delaware bankruptcy case.
The plan still needs court and creditor approval. The company hopes to exit bankruptcy by the third quarter, according to a statement.
The big changes atop SemGroup will be in ownership, with debt converted into equity in a publicly traded company listed on a stock exchange. 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 Tulsa-based midstream oil and gas pipeline, storage and transportation company will also keep most of its units such as SemGas, SemCrude and SemFuel, according to reports.
“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 Friday. The company has until Sept. 18 to gain creditor approval.
U.S. Bankruptcy Judge Brendan L. Shannon must rule that the disclosure statement is adequate before the plan can be voted on by creditors. The deal calls for $2.27 billion distributed to secured and unsecured creditors through either stock equity or cash.
SemGroup is still in the process of transferring, selling off or winding down all of the SemMaterials asphalt unit but expects to maintain its other operations, including terminal services in Cushing and Glenpool and the White Cliffs Pipeline project in Colorado.
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 receives 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.
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 another 200 with SemMaterials earlier this year.
SemGroup now employs slightly more than 200 people in Tulsa and about 1,360 companywide, according to reports.
“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 before the end of the year. Kivisto and Wallace had served as CEO and CFO, respectively, from the company’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 disclosures by publicly traded SemGroup Energy Partners on 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 completely separate company from SemGroup LP. Several hedge funds 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 right with SemGroup’s current executives.
Catsimatidis’ spokesman said he 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 its 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 yet seen the plan. “Creditors have to agree to it.”
SemGroup may only be 9 years old, but its reputation grew fast and large in Tulsa and nationally. 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 philanthropic efforts locally. SemGroup sponsored the LPGA women’s professional golf tournament in Tulsa last May, only two months before the bankruptcy.
This aerial photo of SemGroup headquarters near 61st and Yale was taken on July 30, 2008. TOM GILBERT/Tulsa World