Isle Arco stations The bankrupt master tenant of 17 Arco and 7-Eleven gas stations on Oahu is seeking to give the properties back to the stations' owner, a deal that would carry several implications for local consumers and taxpayers.
may be returned
to owner
They could be sold in the
wake of the operator's bankruptcyBy Tim Ruel
Star-BulletinStation operator BC Oil Ventures LLC is asking for court approval for a settlement with the stations' owner, U.S. Restaurant Properties Inc., a Dallas-based real estate investment trust. A hearing on the motion is scheduled for Wednesday in U.S. Bankruptcy Court in Santa Ana, Calif.
The settlement is backed by the case's newly appointed bankruptcy trustee, Los Angeles attorney James Joseph. BC Oil filed for Chapter 11 bankruptcy protection in August, allowing the company to reorganize its finances without the threat of lawsuits from creditors.
U.S. Restaurant originally bought 27 Oahu gas stations in 1998 from Shell Oil and Texaco, which had to divest the properties to get approval for their national joint venture.
BC Oil, based in Orange County, Calif., picked up 17 of the leases to the stations, and converted them to reintroduce the Arco brand to the Hawaii market. Late last year, 7-Eleven subleased 10 of those stations.
State officials hoped the deal would lead to lower gas prices in Hawaii through increased competition. But BC ran into financial trouble, in part because the gas business in Hawaii is not as profitable for dealers as it used to be.
U.S. Restaurant is one of the top secured creditors of BC Oil, owed $10 million for a loan. Under the settlement, BC Oil would pay $1 million to U.S. Restaurant and walk away from the Hawaii stations entirely. In turn, U.S. Restaurant would distribute $250,000 of the settlement to unsecured creditors.
The plan has already drawn criticism from BC Oil's other main creditor, the state of Hawaii, which is owed $9 million in fuel and general excise taxes. The state argues that it has a stronger claim to the Oahu properties, because U.S. Restaurant never registered its loan to BC Oil with the Taxation Department, as specified by law.
If the settlement is approved, the state would have to depend on other collateral in BC Oil to recoup the claim, said Kurt Kawafuchi, supervisor of the Tax Division of the state Attorney General's office. All sides in the bankruptcy are still negotiating, he noted.
Meanwhile, the state has not fared as poorly as other creditors, Kawafuchi said. Ever since BC Oil filed for bankruptcy, the company has stayed current on its Hawaii taxes, paying some $3.6 million. Meanwhile, BC Oil has gone delinquent on $350,000 in payments to the state of Washington. The attorneys in the bankruptcy case haven't been paid either, Kawafuchi said.
"We wanted to try to collect what we could," Kawafuchi said.
If the settlement is approved, U.S. Restaurant could either find another gas station operator, or put the properties up for sale outright.
The latter option could have unintended consequences for Hawaii consumers.
The last time the stations went up for sale, a federal judge barred three major gas companies in Hawaii from bidding -- Chevron, Tosco and BHP Hawaii -- to encourage new competitors to enter the market.
U.S. Restaurant would not face the same restrictions in looking for a buyer, opening the door to the expansion of existing gas companies. Representatives of U.S. Restaurant could not be reached for comment.
The company has already listed for sale its most prime site, a 19,000-square-foot station on Kalakaua Avenue in Waikiki. A real estate representative declined to comment.
The settlement between U.S. Restaurant and BC Oil apparently arrived in time to ward off souring relations.
BC Oil had been seeking to dismiss the case, arguing that new owners of U.S. Restaurant no longer wanted to see it survive. In February, U.S. Restaurant sold a 19 percent stake for $20 million to another real estate investment trust, Lone Star Fund III.
U.S. Restaurant recently reported a $19.9 million net loss for the first quarter, down from a gain of $409,000 in the year-earlier quarter. In the fourth quarter of 1999, the company took a charge of $12 million, in part related to the troubles of BC Oil, one of its largest tenants.