The Independent Connecticut Petroleum Association met with the federal Small Business Administration and the state of Connecticut’s Energy Office at the Office of Policy & Management on July 7 and with the state of Connecticut’s business advocate Rob Simmons on July 8 concerning heating oil retailer credit/capitalization issues. Recently, 95 out of 165 of ICPA’s heating oil retailers using electronic communication answered an electronic, anonymous survey concerning their credit/capitalization issues. The ICPA found 91 percent of respondents, across 235 retailers, 214 said they consider their credit/capitalization position a serious issue; 51 percent of respondents have met with their wholesaler(s) and may have a problem for the coming season, extrapolating across 235 retailers, 118 said they may have a credit problem; 29 percent of respondents have met with their private lender(s) and will not be able to secure enough additional credit; and 12 percent of respondents believed their credit/capitalization needs will be met for the month of January/2009, with 88 percent of respondents believing they will be short between a low of $100,000 to a high exceeding $300,000 or more.
The larger issue is the 33 percent - 42 percent of respondents who have yet to speak to either their wholesaler or private lender and who don’t know if they have credit issues yet.
The potential shortfall in credit available to heating oil marketers for just the month of January 2009 is an estimated $40 million. The New England Fuel Institute is conducting a similar survey of marketers across the region to prepare for meetings with federal officials and others to gain assistance for marketers’ capitalization needs. Even in advance of the meeting ICPA has with the local representatives of the SBA, SBA officials stated that the more states who weigh in on the issue, the better the chances of the SBA being able to act.
The key to SBA loan guarantees is the regulatory change now pending the final decision of the SBA Administrator as to what constitutes a “small business” in heating oil and propane. The existing definition is $11.5 million in average annual receipts [average over three years]. The proposed change is to 50 or fewer employees, which will put SBA in a position to provide some loan guarantees to the majority of retailers. This change of definition will be finalized by mid-August, enabling hundreds of marketers that could not qualify for loan guarantees under the old $11.5 million limit to be able to qualify for consideration under 50 or fewer employees rule. The SBA will work with ICPA to set up four locations through the Connecticut State University system where retailers can triage their financials and get prepared to meet with lenders for their borrowing needs. Expect those SBA financial conferences, which will be one-on-one between retailers and SBA, within the next 45 days.
ICPA’s meeting at Connecticut’s Office of Policy & Management’s Energy Office also included OPM’s assurance to assist us identifying any potential loan guarantee availability within state government resources.
ICPA has also met with a private capital firm that could provide mezzanine financing, a hybrid of debt and equity financing.
With product costs at $4-plus a gallon and the near term uncertain, the better prepared marketers can become now to deal with the financial challenges ahead of them, the better. In a growing number of cases it appears some loan guarantees or other unconventional financing will be necessary.