SemGroup creditors committee says company should seek to use cash collateral over DIP financing

By Jennifer Lanning Drey

Portland, Ore., Sept. 15 - SemGroup, LP's official committee of unsecured creditors asked the U.S. Bankruptcy Court for the District of Delaware to allow it to request that the company be permitted to use cash collateral or to force SemGroup to make the request as a condition to remaining under Chapter 11 bankruptcy protection, according to a Monday filing.

The committee asked the court to schedule an interim hearing for Sept. 17 and to schedule a final hearing on the matter for Oct. 1.

The committee believes the approved use of cash collateral would provide a far better alternative for maximizing value than the company's debtor-in-possession financing. The creditors said the DIP financing is "unnecessary and serves only to ensure Bank of America's control of the bankruptcy."

According to the motion, SemGroup defaulted under the covenants and agreed budget requirements of its DIP financing following the court's granting of interim approval on Aug. 8.

The creditors claimed Bank of America then demanded an amendment to the DIP credit agreement that required the company to stockpile $225 million of cash to a Bank of America account.

At the same time, the DIP credit agreement continues to prohibit any borrowings until SemGroup has less than $5 million in cash collateral, which is a condition now rendered impossible, they said.

The effect is "an illusory DIP financing designed to give lenders complete control over the direction of these cases. It amounts to nothing more than a letter of credit facility, which is cash collateralized three times over," they said.

The committee said it previously asked SemGroup to seek approval for the use of cash collateral. However, the company said it would instead move forward in seeking final approval of the DIP financing.

SemGroup has more than $450 million in cash collateral, which, if permitted to use, could be used to buy and build inventory, allowing the company to generate significantly positive EBITDA, the committee said.

The creditors said Bank of America would be adequately protected because the use of cash collateral would enhance SemGroup's operations and going concern value and allow the continued construction of its White Cliffs asset.

The creditors also asked for approval of an adequate protection package, including replacement liens on pre-petition and post-petition collateral constituting a cushion of more than $300 million of unencumbered assets. The creditors believe the package is consistent with the current package.

SemGroup, a Tulsa, Okla., privately held limited partnership that provides midstream services to North America's energy industry, filed for bankruptcy on July 22. Its Chapter 11 case number is 08-11525.

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