Metro Fuel creditor eyes case conversion, end to cash collateral use

By Caroline Salls

Pittsburgh, Jan. 29 - Metro Fuel Oil Corp. secured creditor New York Commercial Bank is asking the U.S. Bankruptcy Court for the Eastern District of New York to convert the company's Chapter 11 case to Chapter 7 and prohibit its right to use the bank's cash collateral, according to a Tuesday court filing.

The bank is also seeking relief from the automatic stay imposed by Metro Fuel's bankruptcy filing to allow New York Commercial to enforce rights against the company's property and collect debts if its accounts receivable are not sold.

Since filing for bankruptcy in September to sell its assets, the bank said the Metro Fuel debtors "have only burdened the estates with approximately $12 million of priming post-petition debt, loaded the estates with other administrative expenses, and racked up more than $5 million in post-petition losses."

Now, as the company's fourth adjourned auction sale date looms on Feb. 4, the bank said there is still no stalking horse bidder.

"It appears that the debtors will - again, for the fourth time - fail to make any asset sale, despite their extremely expensive sale process," the motion said.

New York Commercial said it believes that the company will fail to sell any significant portion of its assets.

"Whether February 4 results in a sale or not, these cases simply cannot afford to continue in Chapter 11," the bank said in the motion. "Sale or not, the debtors have and will have little or no unencumbered, available cash."

Even if the assets are sold, the bank said it does not expect Metro Fuel to receive enough proceeds to pay secured creditors, including New York Commercial and the debtor-in-possession lender, in full.

As a result, the bank said the sale closing would yield no available cash for the company because the proceeds of New York Commercial's collateral would not be available for use in light of the bank's objection.

Instead, the bank said the cash should be immediately paid over to it as collateral proceeds.

The bank said the case should be converted after the sale because Metro Fuel will most likely lack enough physical assets to continue operations, whether or not it held usable cash. New York Commercial said the case should still be converted if no sale occurs on Feb. 4.

"With such a complete failure of the sale process, the debtors will be virtually out of money, even as the DIP lender's February 9 loan maturity date soon requires repayment of nearly $12 million," the motion said.

The bank said the cash collateral use also expires on Feb. 9, and it will not consent to any further use.

Metro Fuel is a Brooklyn, N.Y.-based 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 company filed for bankruptcy on Sept. 27 under Chapter 11 case number 12-46913.

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