Philadelphia Energy Solutions LLC, which six years ago rescued the former Sunoco refinery in South Philadelphia, said Monday it would file a prepacked plan today with the U.S. Bankruptcy Court to restructure $525 million of debt, and bring in new owners.
PES, which is owned by a joint venture of private-equity firm Carlyle Group LP and Sunoco’s parent company, Energy Transfer Partners LP (ETP), said it will continue operating and paying its bills while the reorganization takes place. The company expects to emerge from the bankruptcy in the first quarter. Current management, led by Chief Executive Gregory G. Gatta, will remain in place.
The 335,000-barrel-a-day refinery, the largest on the East Coast, employs 1,100 people, and about 500 contractors.
The company blamed its financial demise directly on the soaring price for renewable energy credits, which now cost the company about $217 million last year, its greatest expense after crude oil costs, and more than twice the company’s payroll, greater than its annual capital expenditures, and four times more than its interest expense.
Gatta, in a statement, called the agreement a win for the region, the state and the city.
“Today’s agreement positions PES well for the future with a sustainable capital structure and additional liquidity, ensuring we can continue to provide critical refined product supply and energy security to the Northeast United States without disruption and with no impact on our employees, suppliers and customers,” he said.
He pledged to continue to work with the government to address “the broken” renewable fuel standards system, which the company has argued puts independent merchant refiners like PES at the mercy of traders selling ethanol credits. The Trump administration in December reaffirmed government’s commitment to the renewable fuel standard.
The company’s news release Monday assiduously avoids using the word “bankruptcy,” but a memo distributed to employees on Sunday acknowledged the reorganization plan would be filed under Chapter 11 of the U.S. Bankruptcy Code. The case was filed in U.S. Bankruptcy Court in the District of Delaware.
“I know this may sound alarming, but I want you to know that this is an orderly process that will allow us to continue operations without interruption during this recapitalization,” Gatta said in the memo.
The company obtained $260 million in new financing comprising $120 million in debtor-in-possession and exit financing, $75 million in additional capital from Sunoco Logistics Partners Operations L.P., which is owned by ETP, and a $65 million equity investment from existing equity holders, led by The Carlyle Group.
Owners of about $525 million in “Term B” debt, due in March, will extend $417 million of debt to come due in 2022, and exchange the remainder for 75 percent equity in the company. Credit Suisse Asset Management and Halcyon Capital Management, hold about 70 percent of the debt.
Under the restructuring the current owners will hold a 25 minority share.
PES announced in August it had hired investment bank PJT Partners Inc. to help restructure its debt. Kirkland & Ellis LLP served as legal advisers, and Alvarez & Marsal serves as its restructuring adviser. The case was filed in U.S. Bankruptcy Court in the District of Delaware.
Under former chief executive Philip Rinaldi, PES invested about $900 million to improve the refinery, taking on debt when oil prices were high, profit margins were fat, and the refinery enjoyed an unexpected boom in discounted domestic crude oil brought in by rail.
But the worldwide fall of crude prices in 2015, along with the lifting of the oil exports ban that reduced the discount for crude from North Dakota’s Baaken Shale formation, has cut into the refiner’s margins.
Comment policy:
Philly.com comments are intended to be civil, friendly conversations. Please treat other participants with respect and in a way that you would want to be treated. You are responsible for what you say. And please, stay on topic. If you see an objectionable post, please report it to us using the "Report Abuse" option.
Please note that comments are monitored by Philly.com staff. We reserve the right at all times to remove any information or materials that are unlawful, threatening, abusive, libelous, defamatory, obscene, vulgar, pornographic, profane, indecent or otherwise objectionable. Personal attacks, especially on other participants, are not permitted. We reserve the right to permanently block any user who violates these terms and conditions.
Additionally comments that are long, have multiple paragraph breaks, include code, or include hyperlinks may not be posted.