Despite the many challenges that have faced the company in the months before and since its Feb. 9 Chapter 11 filing, the man primarily responsible for Appco’s sale hopes the 47 stores still in operation will be turning a profit for someone in the not-too-distant future.
“The sales procedures approved by the court require a closing within 30 days, so our expectation would be that by the middle of August a transition would take place with the new ownership,” Appco Chief Restructuring Officer Andy Weber said Friday.
Weber, whom bankruptcy Judge Marsha Parsons appointed April 14 and tasked with preparing Appco for sale, works for NRC Realty Advisors, the Chicago-based company overseeing the bid and sale process. The bid deadline was Thursday, and Weber said “we hope to have a final selection by the end of next week (this Friday).”
The biggest questions at this point, Weber said, are whether the stores will stay with one company or be split among several, and just how much the sale will bring to help pay off Appco’s nearly $20 million in pre-bankruptcy debts. Those debts include more than $11 million in “secured debt” to lender Greystone Business Credit, and more than $7 million in debt to dozens of unsecured creditors ranging from gasoline suppliers and landlords to Western Union and Pet Dairy.
“We know we have strategic and financial buyers who are proposing on the entire business,” Weber said.
That “entire business” is a pared-down one compared to September 2007, when Dallas-based Titan Global Holdings bought the profitable and stable chain from longtime owner Jim MacLean in a leveraged buyout. At that time, Appco had about 55 stores in Northeast Tennessee, Southwest Virginia and Southeast Kentucky, and also supplied fuel to about 165 independent convenience stores.
MacLean retained ownership of some of the store buildings and property, while to decrease its debt load, Titan immediately sold the buildings and property it had obtained for $15 million (half the purchase price). This left the new Appco operating stores that were leased instead of owned.
That arrangement didn’t cause Appco’s problems, though, and in fact the current bidders are showing a willingness to buy stores that also will come with lease payments.
Titan, though, had difficulties with various other companies it owned, and Appco’s profits eventually became the main entity funding Titan itself. With that cash being transferred out of Appco (more than $3 million in a one-year period) and oil and gas prices turning extremely volatile in 2008, Titan’s troubles essentially became Appco’s troubles.
Appco quit supplying its independent dealers in December, and became delinquent on a wide range of bills from the fall to the bankruptcy filing. Titan continued running the company during the bankruptcy until it became clear that only a sale would result in creditors having any chance at repayment.
Weber took over operations at Appco’s Blountville headquarters, and by June he had terminated the few remaining Titan holdovers, including Titan CEO Bryan Chance.
During the bankruptcy proceedings, it became clear that the “leaseholds” would be problematic without some adjustments. Former owner MacLean agreed to split his “master lease” into several smaller parts, and to renegotiate the lease prices.
Both these moves helped pave the way for a sale, with the break-up into smaller leases increasing the field of potential owners to smaller operators who might want to buy just a few stores, or even just one. The property ownership situation is one Weber has said isn’t an issue, because numerous “C-Store” companies are profitable without owning the buildings and land their stores occupy.
Additionally, Weber has overseen the closing of about half a dozen Appco stores, mostly in Virginia and Kentucky. Appco’s dealer business is gone, so the likelihood of many central office functions being retained by a buyer is slim.
What remains are stores that have been profitable before — for years in the Tri-Cities, Appco was as synonymous with C-stores as the rival it went toe-to-toe with, Roadrunner Markets — and Weber said those stores can thrive again. They have lost an average of $1 million a month since the bankruptcy filing, but Weber said that’s not unusual in these types of cases.
“There is usually some performance interruption,” Weber said. “We know what the stores have done historically, and in this particular case, the stores were not operational for several months, other than having the lights on (essentially January through late March).”
That disruption, he said, means the “interim performance levels” aren’t representative, and that in fact Appco has been operating more like a start-up company since getting “debtor in possession” (DIP) financing from Greystone in late March.
“Bankruptcy sales rarely capture the value of a comparative company that is healthy and outside of bankruptcy. Buyers do know what the stores are capable of producing, and this is what NRC is presenting to buyers and investors.”
In addition to the 47 stores (and five “fee-interest” sites that are former gas stations with no deed restrictions), NRC is marketing the Appco name and trademark. The survival of the red, white and blue brand is not crucial to a successful sale, but Weber said it could have some value and it’s been offered up independently to investors.
“While a single buyer might purchase and retain the name if the sale goes that direction, it is possible that there will be many buyers, and an investor could purchase the trademark and license it to other buyers, and perhaps even other stores outside of the company.”
If not, Appco’s several hundred store employees (both clerks and managers) likely will find themselves trading in their uniforms at some point — but not necessarily their jobs.
“We have a strong core of loyal store managers that have helped us get here,” Weber said. “They generally have the most job security with their specific knowledge and customer relationships.”
They also have, for the first time in months, glimpses of a light at the end of the tunnel.