(Bloomberg) -- Mercon Coffee Corp., the bankrupt global coffee trader, must try to negotiate a cheaper way to fund its restructuring case after a US judge rejected a proposed loan from Coöperatieve Rabobank.
Rabobank had agreed to loan Mercon as much as $40 million that would pay about 15% interest, plus an upfront fee of 3% on part of the debt and the payment of $3.8 million in expenses, according to court documents and US Bankruptcy Judge Michael E. Wiles. The loan also included provisions that made it likely Mercon would be forced to liquidate instead of being bought or reorganized, Wiles said.
“On the whole I don’t think that arrangement is appropriate,” Wiles said during in the company’s first court hearing, which was held by telephone. “It is far too generous.”
Mercon will try to negotiate a new deal with Rabobank and present it to Wiles in the next few days, company attorney Paul Keenan said. The company and Rabobank had argued it needed the loan just in case the price of coffee dropped so much that Mercon needed to make multi-million margin calls. The company has at least $12 million in cash in the bank, Keenan said.
If the company can come to new terms with Rabobank, it may ask the judge to approve the loan during a rare, weekend court hearing, Keenan said.
The company’s cash forecast showed Mercon won’t need any more money for at least the next few weeks, Daniel Rudewicz, a lawyer with the US Trustee said during the hearing. That means the company may not need to borrow any money, Rudewicz said. The agency is an arm of the US Department of Justice and monitors corporate bankruptcy cases.
Wiles said he would likely approve a loan that paid about 13% interest if it stripped out many of the fees and other costs that made the debt so expensive. The judge also said he was not comfortable with how much control the loan contract gave to Rabobank. The part of the loan that would refinance $20 million of older debt didn’t stand “a ghost of a chance” of being approved in its current form, Wiles said.
A lawyer for Rabobank argued that the loan terms were necessary to compensate the bank for allowing Mercon to use collateral backing a current loan. The value of that collateral could be damaged by a drop in the price of coffee, Rabobank lawyer Ingrid Bagby said in court.
Mercon had sought permission to borrow $20 million in new money from Rabobank and refinance $20 million worth of older debt, according to court documents.
The Netherlands-based green coffee supplier filed bankruptcy Dec. 6, listing liabilities of $357 million in its court documents. The bankruptcy filing lets Mercon keep operating while it pursues an “orderly sale of its assets.” The company has listed possessions worth a total $359 million.
Mercon blamed its troubles in part to series of events that followed the eruption of the Covid-19 pandemic. In 2021, the company ramped up inventories — and borrowed extra money to fund the endeavor — as part of efforts to mitigate the impact of logistical bottlenecks on coffee deliveries. The trader was eventually left with excess supplies of the commodity, which it sold at a loss, according to a court filing. A surge in interest rates and a subsequent slump in coffee prices further weighed down the company.
The case is Mercon Coffee Corp., 23-11945, US Bankruptcy Court for the Southern District of New York (Manhattan).
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