Potential buyers are eyeing stricken coffee trader Mercon, which filed for bankruptcy protection last week after Rabobank called in a US$325mn credit line.

Netherlands-headquartered Mercon specialises in sourcing and trading green coffee and has operations across Asia, Africa and Latin America. The company is continuing to trade while the Chapter 11 bankruptcy proceedings are underway. 

Paul Keenan, a lawyer representing Mercon, told a New York court hearing on Monday that the company had been contacted over the weekend by five “strategic potential purchasers” of the company’s assets, and one private equity firm. The trader’s chief restructuring officer is also in talks with investment bankers over a potential going concern sale, he added.  

Keenan said Mercon will “seriously explore a going concern sale with these strategic [buyers], who are very well known in the industry, who certainly have the wherewithal to close”. A sale of the business would “maximise value for creditors, such as Rabobank” as well as suppliers and employees. Mercon’s lawyers are also in discussions with specialists in financing for bankrupt firms.  

In a December 6 bankruptcy filing, Mercon reported current assets of US$359mn. It currently owes US$363mn to creditors, by far the largest of which is Rabobank. US$202.5mn of Mercon’s borrowing from the Rabobank facility remains outstanding.  

The company was forced into bankruptcy after being buffeted by a series of supply chain and market shocks since the outbreak of Covid-19 pandemic in 2020, according to the filing.  

A sharp drop in coffee bean prices during the initial period of the pandemic was quickly followed by supply chain bottlenecks caused by labour and truck driver shortages, the document says.  

To avoid shipment delays, Mercon took on more debt to boost inventories. But in mid-2021 the market “experienced an unexpected inversion, causing the immediate and near-term delivery prices of coffee to surpass those set for future delivery”. As a result, the company was forced to sell its excess inventory at a loss. 

The steady climb in interest rates the following year further increased borrowing costs and meant the trader experienced “financial difficulties in meeting the debt obligations under their bilateral loans”. Soaring cash rates were compounded by yet another steep fall in market coffee prices from mid-2022.  

Mercon subsequently breached covenants in its Rabobank facility, although the bank initially granted waivers. But from August this year, as market conditions worsened, the value of Mercon’s collateral continued to deteriorate and by late October the facility was overdrawn by some US$16mn.  

On November 3 Rabobank issued Mercon with an acceleration notice, which precipitated the bankruptcy.  

At a hearing last week, bankruptcy judge Michael E. Wiles nixed a proposed US$40mn loan from Rabobank to help Mercon trade during the bankruptcy process, according to Bloomberg, deeming conditions such as a 15% interest rate and US$3.8mn in additional expenses as too harsh.  

Keenan told the December 11 hearing that Rabobank had not put forward a revised debt offer in the wake of the judge’s criticism, and the two sides instead struck a narrower cash collateral agreement.  

The US$40mn loan was needed in case the company was required to make margin call payments that could potentially stretch into the tens of millions, Keenan said. But earlier the same day, Mercon’s broker, Macquarie Bank, had liquidated almost all the trader’s hedging positions, meaning any future margin calls would be in the tens of thousands of dollars. 

Rabobank declined to comment.  

Dutch development bank FMO has the second-largest secured exposure to Mercon through a US$25mn facility, which the court heard is secured by liens over Mercon’s physical facilities and real estate in Nicaragua. 

FMO is also among creditors which have unsecured claims against Mercon over US$5mn, alongside Dutch ESG investor The &Green Fund, private credit provider Crowdout Capital, the London Forfaiting Company, Banco Agromercantil and the Nicaraguan subsidiary of Banco LaFise.  

Keenan said Mercon’s financial difficulties have sparked “intense” interest in Nicaragua, where the trader has around 700 direct employees and is a long-time purchaser from some 14,000 coffee growers.