SemGroup’s $3.2 billion failure shocks backers
NEW YORK (Reuters) –
The dramatic collapse of energy trader
SemGroup LP shocked the privately held firm’s backers who until
last week had little idea of the extent of the oil trading
losses that sank it, sources said this week.
As late as June a banker at Bank of America (BAC.N), one of
SemGroup’s main lenders, described the fast-growing company as
one of his best clients, two sources said this week.
The Tulsa, Oklahoma-based company filed for bankruptcy on
Tuesday after suffering $3.2 billion in losses on energy
futures and derivatives trades that SemGroup says were designed
to protect its physical oil trading business.
SemGroup creditors said this week they had little idea of
the extent of the firm’s losses and were surprised by the much
larger than expected size of the hedging program.
Some creditors suggested on Wednesday the possibility that
fraudulent trades may have caused the collapse.
“Last week was the first that we heard of this level of
losses and at the same time heard the need for more money,”
said Keith Wafford, a lawyer for 11 SemGroup lenders in a U.S.
bankruptcy court hearing on Wednesday.
Due to the larger than expected hedging losses, SemGroup
creditors will likely recover only half of the more than $7
billion they are owed, Moody’s Investors Service said on
Shareholders including private equity giants Ritchie
Capital Management, Riverstone Holdings and the Carlyle Group
are expected to be wiped out.
Founded in 2000, SemGroup grew rapidly through dozens of
acquisitions, becoming the 12th-largest privately held company
in the United States last year, according to Forbes.com.
SemGroup told investors its operating cash flow could reach
$600 million this year before the cost of hedging its physical
oil trading business which bought or sold more than 500,000
barrels of oil a day, two sources said.
But on a July 15 conference call with lenders, SemGroup
revealed its massive bets that oil prices would fall had gone
spectacularly wrong and that it was out of cash, sources said.
The next day, Bank of America, the administrative agent for
three secured loan facilities totaling $2.55 billion, issued a
default notice to SemGroup, bankruptcy court documents show.
“These guys were supposed to be the straight arrows. They
had smart, veteran traders and everyone is shocked by what has
happened,” said one source close to the bank lending group.
The Bank of America default notice triggered a cascade of
bad news for SemGroup. The company suspended its co-founder and
chief executive Thomas Kivitso and was forced to recognize $2.4
billion in losses on NYMEX crude oil futures when it
transferred its trading position to Barclays Plc (BARC.L).
Included in the losses was $290 million owed to SemGroup by
Kivitso’s personal trading company.
By July 17, counterparties to SemGroup’s over-the-counter
energy derivatives trades began terminating trades, resulting
in a further $850 million loss for SemGroup.
“People had no idea about these over-the-counter trades and
absolutely no idea that Kivitso was running his own NYMEX book
within the company as well,” said a source close to the
That same day, shares of SemGroup Energy Partners LP
(SGLP.O), SemGroup’s publicly traded subsidiary, plunged by 52
percent despite the fact that SemGroup’s mounting financial
problems, which were by then well-known among lenders and
trading counterparties, had not yet been made public.
SemGroup Energy Partners, which is not part of the
bankruptcy filing, disclosed its parent’s problems in a press
release issued hours after the market closed on July 17. The
U.S. Securities and Exchange Commission has opened an inquiry
into SemGroup Energy Partners’ disclosure practices.
(Reporting by Robert Campbell, editing by Matthew Lewis)
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