The filing appears to suggest that Appco’s creditors — the five largest of which are owed more than $1 million each — will be able to collect on their debts.
“Debtor estimates that funds will be available for distribution to unsecured creditors,” one section of the filing reads.
The filing is signed by the CEO of Appco’s parent company, Titan Global Holdings, which bought Appco in September 2007. Mark Dessauer, an attorney for Hunter, Smith and Davis in Kingsport, is representing Appco, which operates 55 stores in Northeast Tennessee, Southwest Virginia and Southeast Kentucky.
Ironically, the second-largest creditor listed is Crescent Oil Co. of Independence, Kan., which also is owned by Titan and which itself filed for bankruptcy Saturday. The filing lists Appco’s debt to Crescent, for fuel, at $1.65 million.
Titan’s federal financial filings showing that Titan has bought several companies — including a shoe company and an electronic printed circuit board maker — and eventually closed them. Those filings also show Appco turned a $24 million profit on operations from September 2007 through August 2008.
How the bankruptcy plays out will depend on several factors, Milligan College economist Bill Greer said Tuesday.
“Chapter 11 is generally applicable to a business that is a viable, going concern,” Greer said. “It just needs to be assisted through a transitionary period because of accumulating too much debt, for whatever reason, and Chapter 11 gives a company time to restructure again.”
Greer added, though, that Chapter 11 can be misused, and based on his knowledge of Titan Global Holdings, he said Titan’s strategies appear to deserve some scrutiny. He said holding companies often have a portfolio of businesses that include stable “cash cows” and other holdings that have good potential but need more cash to grow.
Assets can be transferred from cash cows safely and effectively, or they can be used to continue acquiring companies in what essentially becomes a shell game, Greer said.
“If you’ve milked your cash cows for all they’re worth, that strategy’s run out of steam. You can’t continue to perpetuate it.”
When bankruptcy results in those types of cases, Greer said, it crosses the line into being questionable in his view.
“My ethical reservation about Chapter 11 is, it’s too often used as a regular finance strategy to reduce debt load.”
Appco’s bankruptcy filing comes about two months after it quit providing gas to independent convenience stores, and about seven weeks after Appco representatives first began saying the company was going to refinance its debt “any day.”
Appco CEO Marty Anderson said on Jan. 2 that “last-minute legal details” had pushed a refinancing back to Jan. 5 or 6.
Appco officials would not comment on the filing, which is case number 2:09-bk-50259. Creditors can view documents filed by Appco at www.tneb.uscourts.gov.
The filing warns creditors that usually “the filing of the bankruptcy case automatically stays certain collection and other actions against the debtor’s property” and that attempting to “collect a debt or take other action in violation of the Bankruptcy Code” could result in a penalty to a creditor.
That is called an “automatic stay” and comes because bankruptcy offers a debtor protection while a solution is worked out, with the court’s supervision, between the bankrupt company and its creditors.
The next step in the process will likely involve attorneys for the debtor meeting with creditors or their representatives, under the auspices of the bankruptcy court, to try and determine a feasible workout plan that maximizes the amount paid back to the creditors.
Typically, those plans can include creditors agreeing to accept a portion of the amount they’re owed, or agreeing to let the debtor pay them back over a longer period of time, or sometimes both.
Whether Appco stores will stay open in the wake of the filing is uncertain. The Tennessee Lottery pulled its machines and tickets from the stores in late December, and since then Appcos have quit offering gas (in early January) and money orders, and run bare of almost all beer and cigarettes.
Of Appco’s top seven creditors, six supplied fuel, and debts to them total $8.2 million. The exception is grocery and tobacco supplier LP Shanks of Crossville, which is owed $1.4 million.