Philadelphia Energy Solutions files for Chapter 11 bankruptcy
Philadelphia Energy Solutions LLC (PES), which operates two refineries in Philadelphia with a total of 335,000 b/d of capacity, reached financial restructuring agreements with holders of 100% of its Term A debt and more than 90% of its Term B debt, its PES Holdings LLC subsidiary reported on Jan. 22.
The agreements involve the company going into Chapter 11 bankruptcy to complete the financial reorganization, which it expects to complete during this year’s first quarter, as it restructures more than $100 million of existing debt while securing access to new capital, it said.
The company also has secured access to $260 million in financing comprised of $120 million in debtor-in-possession and exit financing, $75 million in additional capital from Sunoco Logistics Partners Operations LP, and a $65-million equity investment from existing equity holders, led by the Carlyle Group along with management and other partners, PES said.
The recapitalized company will have a stronger financial foundation to support operations amid continuing pressure on refining margins and soaring costs for merchant refiners associated with the purchase of renewable identification numbers (RIN) to satisfy requirements under the federal Renewable Fuel Standard, which the US Environmental Protection Agency administers, it added.
“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 US without disruption and with no impact on our employees, suppliers, and customers,” PES Chief Executive Greg Gatta said.
“In order to complete this process without delay, we will continue to work with the government to address the broken RFS system that is harming smaller, independent merchant refiners like PES,” Gatta said.
No interruptions anticipated
With $260 million in additional capital to support operations, PES said that it expects no interruption to operations, and customer and supplier agreements will remain in effect. The company will continue to pay employees and provide them with their usual benefits, and to pay vendors in full and in the ordinary course of business, pending customary court approvals and the continuation of customary trade terms, it said.
PES added that its collective bargaining agreement with the US Steelworkers, as well as work agreements with various building trade unions, will remain in place. The company also has entered into an intermediation agreement to assure continued access to crude oil supplies during the Chapter 11 process, it said.
The announcement drew immediate responses from US Sen. Patrick J. Toomey (R-Pa.) and the Fueling American Jobs Coalition (FAJC), a group of independent refiners, small retailers, and labor unions.
Toomey said the bankruptcy filing was a direct result of “the counter-productive, job-killing, EPA-imposed RFS that requires an excessive amount of biofuel be blended into the nation's fuel supply.”
In a Sept. 22 statement, FAJC said, “The [RFS] program forces many independent refiners to pay sky-high prices for compliance credits that they simply cannot earn themselves. Refiners are captive buyers in the lucrative market for these RINs. Those who profit in this situation—Wall Street speculators, large integrated oil companies, and large fuel retailers—consistently oppose reasonable changes to the RFS that would diminish their profit stream, even if those profits come at the price of economic pain for refiners and their workers.”
Contact Nick Snow at [email protected].
Nick Snow
NICK SNOW covered oil and gas in Washington for more than 30 years. He worked in several capacities for The Oil Daily and was founding editor of Petroleum Finance Week before joining OGJ as its Washington correspondent in September 2005 and becoming its full-time Washington editor in October 2007. He retired from OGJ in January 2020.
