All-Star Gas Corporation
SITUATION
All Star Gas is a company that supplies liquid propane (LP) gas to residential and commercial customers in five Midwestern and Mountain states. In spring 2003, the Company had annual revenues of about $50MM and debt in excess of $100MM. The company’s heavy debt burden and poorly managed operations over a period of years resulted in a liquidity crisis in the winter of 2002-2003. Besides its inability to service its debt, the company was unable to buy sufficient propane during these critical winter months. Inventories were nearly gone, with about 25% of retail locations out completely. Compounding the crisis were several issues: a pattern of questionable insider transactions, a corporate culture steeped in secrecy, nearly $1million in delinquent federal withholding taxes and several million dollars of unreleased A/P checks. In March, 2003, senior note holders exercised their rights to gain control of the board, removed the former CEO, and retained CRP to manage the crisis.
CRP’S APPROACH
CRP moved immediately to get control of the company: locks were changed, security codes were re-programmed, and voicemail and email were secured to prevent unauthorized access and loss of information. CRP took control of cash to ensure adequate funds for critical needs: gas, keeping trucks on the road and paying utilities. CRP negotiated with the company’s vendors to continue deliveries of propane and obtained additional financing from the company’s senior note holders.
Then, CRP changed the marketing focus from volume to profitability, letting unprofitable contracts expire. CRP also began a program of risk management to hedge against fluctuations in supply and pricing. Excess operating expenses were eliminated, and financial controls were improved. At the same time, CRP gradually changed the corporate culture by communicating with employees, holding daily operations meetings and sharing information openly.
In late July, 2003 All Star Gas filed Chapter 11 and began negotiations with creditors on a restructuring of its debt. After a series of difficult negotiations the company formulated a Plan of Reorganization that won the support of the Unsecured Creditors Committee, senior note holders and other creditors.
RESULTS
- Operations improved, positive EBITDA was restored, and the balance sheet restructured.
- Annual EBITDA climbed from negative $0.3MM to $2.3MM in the first year despite an unusually warm winter causing slackened demand.
- The company’s operations improved enough to support its new reduced debt load.
- Unsecured creditors were ensured an enhanced recovery.
- The success of the turnaround encouraged further support from the company’s lenders and future equity owners.