Dunhill Terminals LP and three associated firms filed Friday in U.S. Bankruptcy Court in Mobile. Chapter 11 does not mean that a firm is closing its doors; companies generally use Chapter 11 in an effort to reorganize debt and continue operations.
In this case, court papers indicate that a Houston firm, Arc Terminals LP, is trying to buy Mobile-based Dunhill through an auction in bankruptcy court. Dunhill proposed in court papers that its assets be auctioned May 12.
“We hope that it is going to proceed very quickly and that it will result in a sale of all of the assets,” said Larry Voit, Dunhill’s Mobile lawyer. Company officials did not return a call seeking comment Monday.
Voit said that Arc has bought ownership of Dunhill’s $57.5 million in loans from Regions Bank. Buying loans of a company that’s in financial distress is one way to acquire control. Arc has offered to pay $40.5 million for Dunhill. Of that, $40 million would be forgiven debt and $500,000 would be cash.
Voit said he didn’t know if any firm aside from Arc would bid.
Arc and Dunhill both run tank farms that they hire out to other companies that need to store and distribute chemicals including gasoline, aviation fuel, biodiesel and ethanol. Dunhill was also building a biodiesel refinery in Chickasaw.
Arc is a subsidiary of Lightfoot Capital Partners LP, a New York-based private equity firm that invests in energy companies. Lightfoot created Arc in 2007. Arc now owns all or part of eight other terminals around the Great Lakes and on the East Coast.
Dunhill has storage capacity of 650,000 barrels in Chickasaw, and could eventually have 850,000 barrels on Blakeley Island. That would be a major boost to Arc’s storage capacity of 2.1 million barrels.
Both companies are relatively small players in the independent terminal business. David Doane, the executive director of the International Liquid Terminals Association, said his 500-plus members have storage capacity for 380 million barrels in the United States. Market leader Kinder Morgan has capacity for 100 million barrels.
In court papers, Dunhill said that its construction projects were delayed and its finances crippled.
“Due to the recent economic decline and construction cost overruns, the facilities could not generate sufficient cash flow to continue operating on a profitable basis and the debtors defaulted on the loan,” the court papers said. “Many of the debtors’ customers filed for bankruptcy or did not renew their contracts.”
Dunhill began trying to sell the business in July, and its loans were called in December, filings say.