Regional Report Triad July 2010
Renegade Holdings Inc. wanted to emerge from Chapter 11. A U.S. Bankruptcy Court approved the Mocksville-based tobacco company’s reorganization plan, and its creditors were on board. There was just one problem: Sixteen attorneys general, including North Carolina’s, wanted to stop it. Acting through the National Association of Attorneys General, they cited a two-year-old federal investigation into illegal cigarette trafficking by the company and CEO Calvin Phelps.
Renegade President Mike Mebane says the dispute — and for that matter, the Chapter 11 filing itself — actually concerns payments the company must make to an escrow account as part of the 1998 Master Settlement Agreement that governs how tobacco companies operate. NAAG enforces the agreement. Renegade, which employs about 140 and makes Tucson and Tracker cigarettes, Hombre and Vendetta little cigars and private-label brands, entered Chapter 11 in January 2009 largely because it owed $7.8 million in escrow payments among debts of $14.3 million. It listed $41 million in assets, but $29 million of that was in the escrow account and couldn’t be used by the company.
Despite the Chapter 11 filing, Renegade made money in 2009, Mebane says. He wouldn’t disclose the amount. Net sales increased 35% from the preceding year, and operating costs declined about 18%. “In the first 17 weeks of 2010, we were up 20% in net sales. This train is headed north.” It needs to be. Under terms of the reorganization, Renegade plans to pay its creditors in five years. It says it will meet its obligations to the escrow account within seven. NAAG wants that done immediately.
Federal bankruptcy Judge William Stocks approved the plan in April. Renegade emerged from bankruptcy June 1, but not before NAAG asked Stocks to stay the reorganization because of the trafficking investigation. Mebane says neither he nor anyone who reports to him — which excludes Phelps — has been questioned by investigators. Phelps couldn’t be reached for comment. NAAG wouldn’t comment.
Stocks rejected NAAG’s request for the stay, but the association has asked him in a separate motion to reconsider his approval of the reorganization plan. A hearing on that motion hadn’t been scheduled as of early June. NAAG has appealed the decision to U.S. District Court.
Chapel Hill bankruptcy lawyer John Northen, who represents Renegade, says he expects NAAG to continue efforts to block Renegade. “We want to get on with our business. I want the motion heard, I expect the court to deny it, and I expect the states to continue with their appeal. We’ll deal with that.