Mercon Coffee, a 150-year-old trader, bet on inventory and lost when prices fell

Mercon Coffee Group is one of the world's largest green-coffee suppliers, tracing its roots 150 years to a Nicaraguan coffee-growing family and operating across the Americas, Europe and Asia. During the pandemic's supply-chain disruption it ramped up inventory to 2.4 million bags by January 2021 to protect delivery commitments, financing the stock with bilateral loans totaling about $119.6 million.

The bet turned sour quickly. In June 2021 the market inverted into backwardation, so Mercon sold excess inventory at a loss; from March 2022 the Federal Reserve's rate hikes made its borrowing costlier, and in October 2022 Arabica futures fell for thirteen straight sessions as Brazilian and Indonesian crops flooded the market. By January 2023 the price was under $1.44 per pound, more than 40% below the February 2022 high of $2.58.

Covenant breaches under its Rabobank credit agreement followed, along with waivers and an emergency equity injection, Sunloved Java Holdings bought 70% of the parent for about $27 million in June 2023. When borrowing-base collateral kept falling, the facility was overdrawn and the company could not make a mandatory prepayment. Mercon filed Chapter 11 on December 6, 2023 with about $363.3 million of debt.

Chapter 11 with ~$363.3M of debt, including $202.6M drawn on a $325M Rabobank facility, after Arabica fell >40% from $2.58/lb to under $1.44.

Management converted a supply-chain fear into a 2.4M-bag inventory bet financed with $119.6M of bilateral debt.

Backwardation in June 2021 forced sales at a loss, and the October 2022 Arabica collapse cut prices by more than 40%.

Rising interest rates from March 2022 made carrying that debt progressively more expensive.

Lenders refused to extend credit lines, Rabobank was the key facility, and a mandatory prepayment on an overdrawn revolver found the company without liquidity.

A stockpile is a leveraged bet on prices. Mercon financed 2.4M bags with $119.6M of debt during COVID, then sold at a loss when the market inverted; hoarding only works if you can carry it.

Mercon sought a sale and liquidation of its assets in Chapter 11, and its Nicaraguan export arm CISA Exportadora closed around the filing. The case ran under claims agent Kroll with asset sales pursued across jurisdictions; the 150-year-old trading name was wound down rather than reorganized.