Mercon Coffee Group, one of the largest traders filed for bankruptcy
December 09 - 2023
Coffee Geography Magazine
Mercon Coffee Group, one of the world's largest coffee traders, which supplies green coffee to the international coffee roasting industry has filed for bankruptcy protection in the U.S. due to what it defined as "exceptionally challenging operating environment," according to a statement released to CGM.
Headquartered in the Netherlands, the company is active in the processing and wholesale sourcing and trading raw green coffee from all major coffee producing regions and supplying leading coffee roasters such as Starbucks, Nespresso and Lavazza.
Mercon, which has operations in all the major producing regions including Brazil, Vietnam and Central America, said in a letter sent to clients that problems in recent years such as the logistical disruption during the pandemic, frost and drought in Brazil, price volatility, and rising interest rates all combined to hurt the company's financial situation.
The debtor is also seeking $40 million in debtor-in-possession financing from its prepetition lenders, with $10 million available on interim approval, $10 million funded at final approval and a $20 million roll-up of prepetition first-lien debt. The DIP loan is priced at a 9% base rate, a 3% upfront fee, 1% arrangement fee and a 0.5% unused commitment fee.
In the letter, signed by Mercon's Chief Executive Oscar Sevilla, the company said lenders have elected "not to extend credit agreements, resulting in extremely tight working capital conditions."
Mercon said in its DIP motion that it planned to use the post-petition financing to pay operating expenses, finance its Chapter 11 case and to pursue a liquidation plan. The debtor said it would seek court approval to use its cash collateral.
The debtor in court papers reported less than $11.8 million in cash on hand and $363.3 million in funded debt obligations, including $7.5 million owed to Starbucks.
Court documents from the U.S. Bankruptcy Court for the Southern District of New York show Mercon and its affiliates in several countries have a total debt of $363 million.
Among the largest creditors are several banks in the countries where Mercon operates, but also trade companies in Brazil, Central America and the United States.
Rumors of financial problems at the coffee trader, which has sales operations in Europe, Asia and the United States, circulated among some market participants for some times.
The comments followed news from Nicaragua that the country's largest coffee exporter, CISA Exportadora, had closed doors. CISA was a subsidiary of Mercon.
In a statement, Nicaragua's government said it was aware of CISA's suspension of operations and bankruptcy, which it added was "not just occurring in Nicaragua" and was "foreign" to the country's current economic situation.
The government said it was working with the coffee sector, as well as with foreign countries, to ensure the sale and export of Nicaraguan coffee.
"We are doing everything in accordance with our laws and constitution that we need to do to ensure that CISA Exportadora meets its business and financial commitments," it said. One broker, who asked not to be named due to the sensitivity of the issue that Mercon was in a difficult financial situation after failing to extend credit lines for its trading operations, particularly with Dutch bank Rabobank.
Rabobank confirmed Mercon was a client, but declined to comment further on the situation. Mercon said in the letter that it will work with clients to "ensure a seamless process concerning open contracts."
A Mercon source said the company had stocks and will continue to operate under bankruptcy protection, moving coffee from its warehouses and shipping it to buyers.
Mercon is a global supplier with its roots dating back 150 years. The company has been involved in almost every aspect of the coffee supply chain, including farming, sourcing, milling, selling and exporting coffee worldwide.