Daniel Acker/Bloomberg
A handful of banks concentrated in the Southeast are facing loan losses following the liquidation of a Georgia-based wholesale oil distributor that had borrowed more than $200 million from them.
The bankruptcy of Mountain Express Oil, which owned dozens of gas stations and sold fuel to hundreds of others, is set to erode the loan loss reserves at several banks.
First Horizon Corp. led a $218.5 million syndicated loan to the oil distribution company. The bank's CEO referred to the upcoming charge-off at a conference Tuesday, and United Community Banks in Blairsville, Georgia, disclosed its own involvement in a filing Wednesday, though neither bank referred to Mountain Express Oil by name.
It's unclear which other lenders participated in the loan, though Mountain Express Oil said in 2021 it had gotten credit from a First Horizon-led syndicate. That group included United Community, Synovus Financial in Columbus, Georgia; Cadence Bank in Tupelo, Mississippi; and Hope Bancorp in Los Angeles.
Bryan Jordan, the CEO of First Horizon, said Tuesday that the Memphis, Tennessee-based bank will report a significant uptick in its charge-offs this quarter as it takes a $70 million hit on the loan. He described the issue as "idiosyncratic" and said that the $85.1 billion-asset bank is "not seeing any signs of broad stress" in its loan portfolio.
"That's sort of our expectation for the next several quarters — that there's going to be one- or two-off situations, but nothing systemic or broad-based," Jordan said at the Barclays Global Financial Services Conference.
United Community Banks disclosed its own loan charge-off in a securities filing Wednesday, saying that it expects "minimal recovery" on the loan. The $26 billion-asset bank expects a charge-off of $19 million on its 8.7% participation in the loan.
Brandon King, an analyst at Truist Securities, wrote that the oil distributor's bankruptcy is reflective of stresses more commercial borrowers may experience in the coming months.
"While appearing as a one-off situation, we believe more pockets of distress and deteriorating situations are likely going forward given tighter credit conditions," King wrote in a note to clients.
The banking industry tightened its underwriting criteria for commercial clients over the past year, being more selective about customers and charging higher rates to make up for potential risks.
So far, banks of all sizes have said their commercial portfolios remain healthy. Some industries, including the trucking sector, have shown indications of stress, but the vast majority of businesses are showing little sign of financial trouble.
The U.S. economy has also continued growing, defying fears of a looming recession. This week, a group of economists at the country's biggest banks said they don't expect the country to see a downturn next year.
But corporate bankruptcies have risen sharply this year, as some companies struggle with higher interest rates, according to data from S&P Global Market Intelligence.
S&P tallied 459 corporate bankruptcies through August, almost double from a year earlier. The figures from January to August are the second-highest since 2010, surpassed only by 2020, the S&P data shows.
Jordan said Tuesday that First Horizon's loss "will be pretty darn close to total," even though the borrower had solid valuations.
In March, the oil distributor filed for a Chapter 11 bankruptcy that would have allowed it to reorganize its operations. But the bankruptcy turned into a Chapter 7 liquidation last month.
"We have a lot of questions about how we got to where we are," Jordan said.
The $49 billion-asset Cadence Bank declined to comment. The $60.7 billion-asset Synovus Financial and $20.4 billion-asset Hope Bancorp did not respond to requests for comment.
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Southeastern banks face losses after oil distributor's bankruptcy - American Banker
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