SemGroup loan focus of hearing

Published: August 5, 2008

TULSA -- A Tulsa-based energy company that filed for bankruptcy in Delaware is seeking a $250 million debtor in possession loan to keep itself in business while it begins selling off assets to pay its creditors.

A Delaware judge is expected to decide Tuesday whether SemGroup LP can receive the loan. SemGroup has indicated it won't last past Aug. 15 without the emergency funding.

The company is paying employees and some vendors with about $50 million in available cash collateral approved last month by the court.

Judge Brendan L. Shannon heard arguments on the DIP loan last week, but delayed his decision to give objectors more time to make their points.

One of those objectors is SemGroup's own publicly funded subsidiary, SemGroup Energy Partners LP. The public entity receives most of its revenues through storing and transporting oil and asphalt for the now-collapsed private parent company.

SemGroup Energy Partners is concerned the approval of the DIP loan will allow those last-ditch lenders first priority on assets and leave it out in the cold with the parent company's demise. SemGroup LP officials plan to sell all of their company's assets to pay debt.

SemGroup Energy Partners plea to its parent company so far has fallen on deaf ears, records show. While these issues could be avoided if the debtors and lenders agreed to pay SGLP in advance for the necessary costs of preserving the estate, the public company contended in its objection filing, the debtors have refused to do so.

SemGroup Energy Partners is not part of the parent company's filing for Chapter 11 bankruptcy protection. Two hedge funds, Manchester Securities and Alerian Capital Management, took board control of SGLP after SemGroup defaulted on a recent $150 million loan.

Board members and senior managers for the public company say they plan to keep doing business, although SGLP receives up to 90 percent of its revenues through SemGroup LP.

Those oil and asphalt transportation and storage contracts add up to about $134 million annually for SGLP, according to court records.

Combined, these two contracts account for a substantial majority of SGLP's revenues and any reduction in these revenues would have a material adverse effect on SGLP's operations, the court filing read.

SemGroup Energy Partners was taken public in July 2007 at about $22 a share. Its stock closed Monday at $9.72 a share, up 12 cents. The shares have stabilized somewhat after an initial free-fall to less than $6 due to revelations of SemGroup LPs debt burdens.

The 8-year-old private parent company's meteoric rise ended abruptly last month when company officials revealed more than $2.4 billion in hedging losses on the oil futures market.

SemGroup LP also has billions more in debt from a flurry of acquisitions in recent years, according to reports.

SemGroup LP filed for bankruptcy on July 22, five days after reports about debt and trading losses first became public. Some investors have filed petitions for class-action lawsuits against SGLP.

The majority of these shareholder suits allege that SGLP offered 6 million shares in February while misrepresenting the financial strength of the troubled parent company.

Copyright 2008 The Associated Press.

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