Trial by Fire

SBA lender helps ex-councilman survive a host of troubles at refinery
By Cheryl Hall
March 31, 1996

SAN ANTONIO - There's no need to tell Al Gonzalez about divine intervention. The former Dallas city councilman had so many "burning-bush experiences" as he struggled to salvage a small refinery here that he has no doubts about miracles.

"Not to sound churchy," Mr. Gonzalez says as he strolls contentedly through his small facility on the south side of town, "but you don't put together a $75 million program without a nickel. We did. We were blessed."

But Mr. Gonzalez was also cursed - beset by the business equivalent of the Bible's seven plagues.

Deadly toxins, expensive cleanups, tangled red tape, deaf bankers, a soured contract, a disastrous explosion and an insurance Catch-22 struck in successive waves.

Thanks to string-pulling friends, tireless workers and an unrelenting lender, the power remains on at AGE Refining Inc. - short for Al Gonzalez Enterprises.

The nation's only minority-owned refinery, which produces highly specialized fuel for military jets like the U-2 spy plane, expects to post $40 million in sales this year, meet a $1.6 million payroll and add $116 million to the Alamo City's economy when multipliers are applied.

Now that his plant is running safely in the black, Mr. Gonzalez would like other small businesses to know that when traditional bankers turn tail, there are options.

His came in the form of The Money Store, a Sacramento, Calif.-based lender, and its Texas chief, Bob Wagner of Austin.

The Money Store Investment Corp. is a 30-year-old publicly held financial services company that loaned $4 billion last year, much of that in home-equity loans nationwide. About $440 million was in loans guaranteed by the Small Business Administration, making The Money Store the largest SBA lender in the country by a wide margin - as it has been since 1983.

In Texas, The Money Store issued $27 million in SBA loans last year, including about $1 million to Sambuca Mediterranean Jazz Cafe in Addison and $1.5 million to Freedom Furniture Rental for a Dallas warehouse.

Then, of course, there was the $1.1 million in real estate and working-capital loans that bailed out Mr. Gonzalez in November.

"Throughout this whole thing, it would have been so easy for these folks to do what every other lending institution in the United States did," a grateful Gonzalez says, gesturing to Mr. Wagner. "But they rolled up their sleeves and said, 'OK. We believe in your business. How can we get this done?'"

Mr. Wagner, who heads up The Money Store's five-office Texas operation, expects to lend $42 million to small companies in the state this year for acquisitions, renovations, expansions and asset-based refinancing.

"Al is a perfect example of how the SBA program can step in and help a small-business owner, in this case with a property that could definitely be classified as a single-purpose, special-use facility," Mr. Wagner says. "How many banks know that much about oil refineries as collateral?"

He didn't know much either, but the government guaranty allowed him to look beyond collateral and concentrate on the underlying business.

He liked what he saw: $32 million in contracts riding in Al Gonzalez's pocket. "People in our own company asked, 'Why do you want to make a loan on a refinery?'" Mr. Wagner says with a smirk. "We answered, 'This is Texas. You've got to have at least one.'"

What goes around, comes around. Mr. Gonzalez's tale seems to bear witness to that.

His story actually starts back in the Texas heyday of the early '80s, when he was in the oil-trading business and landed a deal to supply crude to the Strategic Petroleum Reserve at $29 a barrel. Shortly thereafter, the price of oil plunged.

The government asked Mr. Gonzalez for a price break. Instead, he surrendered the contract. Polly Duhaine, who oversaw those contracts, used his giveback to coax similar concessions from the majors.

"As a result," says Mr. Gonzalez, "we saved the government something like $47 million. That really endeared me to those people."

Little did he realize that he had taken in a marker that he'd use when his business world fell apart. Mr. Gonzalez, who had prospered in energy and construction, was down-and-out in North Dallas by 1991.

"When I got off the council, I rode things all the way down," he recalls. "I was really hurting and didn't know what I was going to do."

He didn't want to leave Dallas, so he called Washington to ask about any energy deals he might bid on. It turned out that Ms. Duhaine was the contracting officer for military jet fuel purchases, and she wanted to give him a chance at some business.

"Integrity plays a great part in awarding contracts," she says from her office in Washington. "He'd previously performed effectively, ethically and honorably."

The only catch to the government deal was Mr. Gonzalez had to manufacture the fuel himself. "So, I started looking all around the country for a refinery," Mr. Gonzalez says. He heard about a mothballed property in San Antonio and went to look.

"The biggest asset wasn't the plant itself, it was the people," Mr. Gonzalez says. "They knew the plant. I thought, 'If I can get this plant, these guys can make it run.'V"

The facility was valued at $10.5 million. Mr. Gonzalez paid just under $3 million with no money down and the owner toting the note for three years.

That was 1992. His first year as a refiner was tough and the learning curve steep. The second stellar. He made enough money to pay bills, add business and improve the facility.

Still, he desperately needed long-term financing. "My payments were horrendous. We papered the country trying to get a loan. We went to every local bank and couldn't get any money."

One plea found its way to The Money Store in Austin, which was undeterred by the obstacle that other lenders found so daunting.

"There was a 20-year documented history of spills, discharges, releases and sludge pits," explains Mr. Wagner. "We were presented an environmental report that, to my recollection, was in excess of 400 pages."

But The Money Store decided in early 1994 that if Mr. Gonzalez could clean up the mess to the satisfaction of regulators and indemnify the plant from future claims, it would provide a 15-year real estate loan.

Finally, Mr. Gonzalez could see from here to there. That would turn out to be from here to eternity.

In the midst of getting his complex loan package in order, the government changed the way it set fuel prices, using benchmarks that made it impossible for contractors to make money.

A lucrative government business quickly turned into a losing proposition for AGE, and 1994 ended on a very sour note.

The government realized its mistake and refigured its pricing formula. But its new math wouldn't go into effect until April 1995. In the meantime, Mr. Gonzalez was in a serious cash bind. He had to beg suppliers and his banker to give him a little more time until the contract kicked in and the deal with The Money Store was signed.

The night before the new contract was to go into effect, the plant went up in a ball of fire. It took 150 firefighters to douse the flames.

"It was devastating," says Frank Del Angel, the refinery president who arrived on the scene to see the heart of the plant destroyed. "We all felt it might be the end."

The next morning, Mr. Gonzalez called 60 dazed workers together to confirm those fears. He tearfully told them that Ryder was coming for its trucks, the utilities were about to be cut off, he couldn't meet payroll and was headed to the hardware store for a heavy chain and padlock.

"Our local bank wasn't going to work with us," Mr. Gonzalez says, his bitterness still apparent. "The insurance company was going to wait until we got the plant fixed before it would give us any money."

Friends with clout persuaded the bank and trucking company to hold off a little longer. One buddy gave him $200,000 to tide him over. Workers went without pay. And Mr. Gonzalez promised the insurance company he'd have the plant back in business in 30 days if it would give him some up-front money to get the work started.

"I brought all the men together," he says. "They got to see me real humble. I'd mortgaged everything. I'd sold my house on Park Lane. Everything I had was in this place. I told them, 'Guys, this is my last shot.'"

A couple of times payroll wasn't met, but the workers kept going around the clock. Twenty-eight days after the fire, - and two days under the deadline - AGE Refining was back making jet fuel and money.

As the little guy among giant refineries, Mr. Gonzalez remains determined to maneuver with extreme caution. He knows that if he goes toe-to-toe with the big boys, he's going to get stomped.

"We take the crumbs that the majors don't want," he says. "We'll do small things that are too cumbersome for them to deal with."

For example, AGE shares the U-2 fuel deal with Exxon, but the major has opted not to deliver on its share for a while, making AGE the sole supplier. "It's such a comparatively small quantity for Exxon. But for us, it's a really neat deal."

Mr. Wagner's first inclination after the blaze was to call off the deal. "As a lender, if you're doing a property-based loan and it burns down, it's tough to fund the loan," he says with a soft chuckle.

But somewhere during the year and a half that it took to clear environmental and legal hurdles, Mr. Gonzalez's loans ceased to be numbers on paper for Mr. Wagner. "You get a feeling about somebody, and you want to do everything you can to help them. I felt that way about Al."

So he stuck with him - despite raised eyebrows at corporate headquarters in California. In a strange twist, he says, the fire ended up being a positive. Necessary insurance was in place and eventually paid for the business interruption and plant damage.

"We had to overcome some objections within our company. Refineries explode," he says matter of factly. "When they wanted to know what would happen if the plant burns down, we could say, 'It did, and here's what happened.'"

It's provided a feel-good experience for all concerned, says Mr. Wagner. "Particularly," he adds with a laugh, "if Al stays in business and repays the loans."

Upbeat workers here pledge they'll help their boss do just that. Having tasted death twice, they have no appetite for a third course.

The past six months have been decidedly better, and Mr. Gonzalez is breathing easier. "By December, we'd caught up with everyone, just like we said we would," he says. "The most important thing is, we salvaged those jobs."

So when Mr. Gonzalez and Mr. Wagner tour the plant together and see brown gook being turned into high-grade jet fuel, they share a bond rarely found these days between a borrower and his lender.

The two have survived a firestorm.

Cheryl Hall is the Financial Editor of The Dallas Morning News.