SemGroup Faces Cash Crunch

WILMINGTON, Del., July 31 (Reuters) – Bankrupt energy trader SemGroup LP, which collapsed last week after $3.2 billion in bad bets on oil prices, faces a looming cash crunch after legal wrangling delayed a critical loan package on Thursday.

Disputes between its oil suppliers and its main lender Bank of America Inc (BAC.N: Quote, Profile, Research, Stock Buzz) over who has first priority claim on SemGroup's assets scuttled SemGroup's attempt to secure court approval of a $250 million credit line on Thursday.

Bank of America is demanding top priority in repayment in return for extending the $250 million loan. SemGroup's financial advisors said in court filings that other sources of financing were unlikely to be obtained as all of SemGroup's assets are already pledged to other borrowers.

Judge Brendan Shannon ordered the parties to negotiate over the weekend and prepare legal arguments over the status of state law that the oil producers say gives them priority over secured lenders like Bank of America.

A new hearing is set for Aug. 5.

SemGroup needs to secure a credit line to support its business while bankruptcy proceedings are ongoing or it will run out of cash by the week of Aug. 22, court filings show.

“It's not good news that they couldn't get this financing,” said Susheel Kirpalani, an attorney who represents an ad hoc group of SemGroup creditors.

“Their suppliers will start to get nervous about doing business with a company in bankruptcy that has no credit.”

SemGroup has been trying to operate its over 500,000 barrels per day oil trading business while it prepares to auction off its assets to pay its creditors.

The dispute over payment priorities comes as the circumstances of SemGroup's collapse and its current financial status remain murky.

SemGroup's advisers have admitted that improper speculative oil futures and options trades by SemGroup's former chief executive caused the massive losses, according to papers filed with the court by RZB Finance LLC, one of SemGroup's secured bank lenders.

Thomas Kivisto, SemGroup's co-founder and former CEO, was suspended by the company on July 17. A SemGroup spokesman contacted on July 22 when the company filed for bankruptcy said no criminality was suspected in the company's collapse and there were no plans to call in the police to investigate.

However, as early as July 18, some secured lenders were informed by The Blackstone Group (BX.N: Quote, Profile, Research, Stock Buzz), SemGroup's restructuring advisers, that Kivisto had been conducting a huge, unauthorized trading operation within the company, a source close to one of the lenders said Thursday.

Included in SemGroup's $2.4 billion loss on NYMEX energy futures and options was a $290 million tab racked up by Westback Supply LLC, a trading firm affiliated with Kivisto.

SemGroup's publicly traded affiliate SemGroup Energy Partners LP (SGLP.O: Quote, Profile, Research, Stock Buzz) faces a federal probe and numerous lawsuits over the timing of its disclosure of its parent's financial troubles.

By Robert Campbell

(Reporting by Robert Campbell; editing by Jim Marshall)