Sweeney’s empire faces D-day

07 February 2010  By Ian Kehoe, Chief news correspondent

John Sweeney has spent almost 25 years building his business empire. Starting with an oil franchise in Clifden, Co Galway in 1987,Sweeney quickly showed hi s entrepreneurial flair. Over more than two decades of expansion, he transformed himself into one of the richest men in the country.

Sweeney’s business interests are as diverse as they are extensive. From his beginnings in fuel distribution, he expanded to include filling stations, property, convenience stores, hotels and even a few clothing outlets.

At one point, Sweeney Oil was one of the largest fuel distribution businesses outside of Dublin. His oil interests have tapered off since, but the business still generates annual revenues of almost €200 million.

More recently, he started to make waves on the Dublin scene, snapping up a 33 per cent stake in the Shelbourne Hotel on St Stephen’s Green.

That was then; this is now. Tomorrow morning, Sweeney will go to the High Court in Dublin in a bid to stop his business from unravelling into insolvency. Laden down with debts, and with his largest creditor breathing down his neck, Sweeney will seek bankruptcy protection for his main company, Black Shore Holdings, and four subsidiaries.

Michael McAteer, an accountant and insolvency specialist with Grant Thornton, has already been appointed interim examiner to the five companies, and has spent the past ten days meeting their main lenders - Anglo Irish Bank, AIB and Bank of Scotland (Ireland).

Tomorrow, Sweeney and his lawyers will attempt to have the appointment confirmed and made official. However, unlike when the interim petition was brought, Sweeney’s creditors will have an opportunity tomorrow to voice their opinions.

At stake is Sweeney’s portfolio of business interests, as well as the jobs of the group’s 350 employees. If the High Court consents to the petition, McAteer will have 100 days to restructure the group’s debts and assemble a rescue package. If the court says no, Sweeney’s business will be dismantled by receivers and liquidators.

In a worst-case scenario, Sweeney’s creditors will find themselves nursing massive losses. Court documents filed by the company reveal that there would be a €149 million deficit in the group’s finances if it were liquidated.

According to an independent accountant’s report, submitted to supp or t the examinership application, Black Shore’s assets have a book value of €42.8 million, but would be worth just €810,000 in the event of the firm being wound up.

The company has liabilities of more than €150 million, according to the report, which was prepared by Baker Tilly Ryan Glennon accountants.

Based on this large gap between assets and liabilities, the company’s lawyers will tomorrow argue that examinership would be a better outcome for everyone involved.

‘‘The businesses are fundamentally profitable and the issues that arise are related to legacy issues and challenging trading conditions," the company’s petition states.

It is understood that Sweeney’s bankers have no major objection to the examinership, on the understanding that they will not be asked to write off any of the money they are owed. Many other creditors are believed to have contacted Sweeney in recent days to offer their support.

However, the wild card in the pack is Esso Ireland. Earlier this month, the Irish unit of the international fuel giant lodged a petition with the High Court seeking to wind up Black Shore, arising from guarantees it provided to a related company called Fate Park.

Fate Park was the fuel distribution arm of Black Shore, but it went into examinership last year with cashflow problems. The company was eventually bought out of examinership by a rival operator, Tedcastles, and is no longer in Sweeney’s possession.

But Esso had related guarantees over its €12.4 million Fate Park debt, and it wants Sweeney and Black Shore to honour them. Faced with the winding-up petition, Sweeney decided he had no alternative but again to take his chances with an examiner.

At this point, it is unclear what stance Esso will take to the examinership application. However, even if it objects, the High Court can still override the oil group’s protestations.

Court documents filed by Black Shore outline the background to the company’s problems, and detail the steps that must be taken to overcome its difficulties. Although the move by Esso triggered the application, the documents reveal that the company’s financial woes go back much further.

The company operates primarily in three sectors - property, retailing and hotels. All of these have been severely affected by the recession.

‘‘With the downturn in the Irish economy, the various companies in the group have been experiencing varying financial pressure," according to the report from Baker Tilly Ryan Glennon.

Even after losing Fate Park, Sweeney still has extensive interests in fuel, and controls 11 petrol stations in Galway, Mayo, Offaly, Roscommon and Wexford. A number are leased to third-party operators under licensing agreements.

In addition to his stake in the Shelbourne, Sweeney also owns the Marriott Courtyard Hotel in Galway, the Station House Hotel in Clifden and the Marriott Johnston House Hotel in Enfield, Co Meath.

The hotels are al l owned through Black Shore or subsidiary companies.

In many instances, Sweeney attached a shop or petrol forecourt to his hotels. That allowed him to avail of tax breaks on the hotel, and ensure his other interests had prime locations. He also incorporated shops and office space into his developments for letting.

Two years ago, Sweeney’s diversification into other industries looked wise. In the current market, it is his undoing. Hotels are in trouble and the property market has collapsed.

Court documents filed for Slyne Properties, the holding company for the Marriott Courtyard, show that it would have a deficit of €18.9 million in the event of a liquidation.

While room occupancy has remained healthy, the company has posted losses for the last two years due to a 23 per cent reduction in room rates. The Shelbourne Hotel has also burned through cash, with no sign of any return.

‘‘The company invested €24 million in the Shelbourne Hotel development. To date, there has been no return in this development.

There is no expectation at present that there will be any return of investment in this property, nor indeed a repayment of capital in the short term," according to the accountant’s report.

With all areas of his business under pressure, Sweeney was forced into action late last year. Working with his legal and financial advisers, he started to assess the performance of each company within the group, and to devise restructuring plans.

As part of the process, a business plan - dated October 2009 - was presented to the group’s bankers. However, before the plan could be implemented, Esso lodged its petition to wind up the firm.

That business plan now forms the basis for the company’s examinership petition.

There are five key components to the Black Shore business plan:

1. The group will service interest on borrowings on all performing assets.

2. There will be a moratorium on the interest and capital debt of non-performing loans for 24months.

3. No additional funding will be required from banks.

4. The company will repay debts through the sale of assets, with a small part of the sale proceeds used to provide additional working capital.

5. The group will rent out vacant units.

In addition, the accountant’s report sets out a number of proposals to restructure the company’s balance sheet and improve profitability. Most of these proposals relate to the company’s banking structures and the level of guarantees provided.

Under the current structure, Black Shore is the main holding company, and has effectively provided guarantees to all its subsidiaries. The group also has a global overdraft facility, allowing subsidiaries acc es s to the main group overdraft account.

According to the report, this facility should be ended. In addition, it proposes restructuring the profitable service station operations to allow them to trade independently of ‘‘the commitments of other group subsidiary companies’’.

Inter-company liabilities should also be addressed and the group’s liabilities arising from its hotels should also be looked at.

The report states that Black Shore should also restructure its banking relationship with various borrowers in connection with its subsidiaries. The Esso guarantees must also be addressed, it says.

The plan also calls for the introduction of some new funding, either from existing investors or a new third-party source. This money would be used to help finance a deal with creditors, who will be asked to write off a portion of their debts.

‘‘In conclusion, I believe the company has a reasonable prospect of survival, and the appointment of an examiner to formulate and execute a scheme of arrangement is more advantageous to the company’s secured and unsecured creditors than liquidation," the report from Baker Tilly Ryan Glennon concludes.

For 49-year-old Sweeney, once reported to be worth almost €100 million, tomorrow’s examinership petition is effectively judgment day. The fate of his business empire now rests in the hands of the High Court.