Cash crisis » Company defaults on loans, but intends to operate under Chapter 11
By Paul Beebe
The Salt Lake Tribune

Updated: 12/22/2008 06:19:10 PM MST




A sharp fall-off in oil prices that triggered a credit squeeze forced Utah truck-stop giant Flying J Inc. to file for bankruptcy Monday.
The Ogden-based company estimated its liabilities at $100 million to $500 million on assets of more than $1 billion, according to documents filed in U.S. Bankruptcy Court in Delaware.
The Chapter 11 bankruptcy was a traumatic but inescapable step for Flying J. Over its 40-year history, the company has steadfastly guarded its privacy, while building a petroleum-based empire that includes more than 250 travel centers in North America, as well as affiliated oil exploration, production, distribution and refinery businesses.
"I've had better days," said J. Phillip Adams, Flying J's president and chief executive officer. "It's really directly a result of oil prices coming down as fast as they did."
As recently as July, Flying J was, well, flying. Crude oil prices were at an unprecedented $147 a barrel. Nationally, the average price for diesel was $4.85 a gallon. Regular unleaded gasoline sold for an unheard-of $4.11 a gallon.
In hindsight, it's clear the prices couldn't hold. Unbeknownst to most economists, the economy had entered a severe recession. Since their peak in July, crude prices have tumbled more than $100 a barrel, an unprecedented rout that has dragged diesel and gasoline to lows not seen in almost five years.
"The decline in oil prices has led to material declines in [Flying
J's] liquidity in its retail operations, as well as [its] supply and distribution operations, thereby decreasing [Flying J's] accounts receivables and the value of [its] inventory as a result of writing [its] inventory down in value," the travel services company said in a court document.
The fall-off began in September and accelerated in November. Adams said the decline of oil prices happened so quickly that Flying J didn't have time to convert assets that weren't tied to petroleum prices into cash that could fund its obligations.
The credit crisis aggravated Flying J's problems. Adams said oil was the collateral that secured loans made to the company's refining and pipeline subsidiaries. As crude fell, Flying J was forced to write down the collateral's value by $100 a barrel, putting some loans afoul of their covenants and making it impossible to tap new credit.
"In most markets, we've got great assets we would have had the ability to monetize. … In this environment, we didn't have the time to get that done," Adams said.
On Friday, a $53 million loan to the refinery subsidiary was declared in default. A day later, a $45 million loan to Flying J's pipeline unit was in default.
The company has no plans to lay off any of its 16,000 employees, Adams said. Under court protection from its creditors, Flying J's operations will produce enough cash from its operations to run all of its businesses, including the travel plazas in 41 states and six Canadian provinces and its oil refinery in North Salt Lake.
Flying J isn't sure how long it will remain in bankruptcy.
"Hopefully, it will be short, meaning months rather than years," spokesman Peter Hill said.

That's interesting,I wonder how many truck drivers that were filling their tanks at flying J's when it was 4.85 knew these people had oil refineries?My guess is if they did, Flying J would have went into chapter 11 sooner.