Metro Fuel Oil files Chapter 11 bankruptcy amid plans to sell assets

By Caroline Salls

Pittsburgh, Sept. 27 - Metro Fuel Oil Corp. filed Chapter 11 bankruptcy Thursday in the U.S. Bankruptcy Court for the Eastern District of New York.

Metro chief restructuring officer David Johnston said in a statement filed with the court that, while the company has attempted to work with its existing lender group on an out-of-court refinancing or strategic investment solution, the lenders have been unwilling to cooperate with the company on its efforts to bridge to a paydown transaction.

Instead, Johnston said the lenders have accelerated all of the debt obligations and swept substantially all of Metro's cash on hand in the period between Sept. 12 and Sept. 21.

The CRO said Metro's lenders have made clear that they will not release the funds or provide any additional financing to the business either in or out of a bankruptcy proceeding, and they have expressed a desire to liquidate the company immediately.

As a result, Johnston said Metro filed bankruptcy to complete a streamlined sale process.

According to Johnston's statement, confidential negotiations with one potential investor have "meaningfully advanced" and have resulted in the exchange of preliminary term sheets.

The CRO said the Metro debtors are cautiously optimistic that this potential strategic investor may serve as a stalking horse bidder in an expected bankruptcy sale process.

DIP financing

In conjunction with the bankruptcy filing, the company has obtained commitments for $10 million in debtor-in-possession financing.

The DIP lenders are Third Avenue Special Situations (Master) Fund, LP and Zell Credit Opportunities Master Fund, LP.

The term loan will mature the earlier of 90 days from the filing date and the closing of a sale of substantially all of the company's assets. There is an option for a single 30-day extension of the maturity date.

Interest will be 6%, which will be payable in kind and added to the principal amount of the DIP facility during the term of the loan.

Metro has paid a total of $200,000 in commitment fees.

The company is seeking interim access to $5 million of the DIP financing.

Under the financing agreement, the sale procedures motion must be filed within 10 days, the procedures must be approved by the court within 30 days, the auction must be completed or a binding agreement signed within 75 days, and the sale must close within 90 days.

Debt details

According to court documents, Metro Fuel Oil has $10 million to $50 million in assets and $50 million to $100 million of debt.

Johnston said the company's outstanding long-term secured debt obligations totaled $58.8 million as of Thursday, consisting of $48.3 million of bank debt and $10.5 million of project financing related to a new biodiesel plant.

The company's largest unsecured creditors are:

• Bayside Fuel Oil Depot Corp. of Brooklyn, N.Y., with a $5.72 million trade AP claim;

• Amerada Hess Corp., based in Woodbridge, N.J., with a $3.41 million throughput claim;

• NIC Holding Corp. of Melville, N.Y., with a $2.59 million trade AP claim;

• Global Cos. LLC of Waltham, Mass., with a $1.63 million throughput claim; and

• Buckeye Pipeline of Breinigsville, Pa., with a $1.17 million throughput claim.

Paul Pullo and Gene Pullo each own 46% of Metro Fuel's equity securities, and Paul Pullo Sr. owns 8%.

The company is represented by Kirkland & Ellis LLP.

Metro Fuel is a Brooklyn, N.Y.-based energy company that energy company that supplies bioheat, biodiesel, heating oil, central air conditioning units, ultra low sulfur diesel fuel, natural gas and gasoline throughout the New York City metropolitan area and Long Island. The Chapter 11 case number is 12-46913.

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