Exclusive: Philadelphia Energy Solutions to file for bankruptcy – memo
(Reuters) – Philadelphia Energy Solutions LLC, the owner of the largest U.S. East Coast oil refining complex, announced to its employees on Sunday that it plans to file for Chapter 11 bankruptcy, according to an internal memo reviewed by Reuters.
The bankruptcy would come six years after private equity firm Carlyle Group LP (CG.O) and Energy Transfer Partners LP’s Sunoco Inc rescued Philadelphia Energy Solutions from financial distress, in a deal that was supported by tax breaks and grants that saved thousands of jobs.
Following an agreement with its creditors, the company has secured access to $260 million in new financing, and said it expected the bankruptcy filing to have no immediate impact on its employees, according to the memo, which was confirmed by a spokeswoman for Philadelphia Energy Solutions. The spokeswoman declined to comment further.
Philadelphia Energy Solutions owns two refineries, Girard Point and Point Breeze. It can convert approximately 335,000 barrels of crude oil per day to products such as gasoline, jet fuel and diesel. It employs about 1,100 people.
Part of the refiner’s financial troubles stem from a costly biofuels law called the Renewable Fuels Standard, which is administered by the Environmental Protection Agency and requires refiners to blend biofuels into the nation’s fuel supply every year, or buy credits from those who do.
Since 2012, Philadelphia Energy Solutions has spent more than $800 million on credits to comply with the law, making it the refiner’s biggest expense after the purchase of crude, according to the memo.
The $260 million in financing secured by the company includes $120 million in debtor-in-possession and exit financing, $75 million in additional capital from Sunoco Logistics, and a $65 million equity investment from the company’s shareholders, led by Carlyle along with the refiner’s management.
East Coast refiners have lower profit margins than their U.S. peers, largely because of a reliance on crude imports from West Africa and other markets. In addition, many of them have been struggling with environmental regulations which force them to spend money on renewable energy credits.
Philadelphia Energy Solutions had strong profits in 2014 and 2015 due to investments in rail terminals that allowed the refiner to bring in discounted Bakken crude oil in mile-long trains from North Dakota.
But the boom turned to bust by the end of 2015 as oil prices plummeted and the discount for North Dakota crude disappeared. The fallout hit oil and gas explorers and producers hard, with scores of them, such as Linn Energy Inc and Breitburn Energy Partners LP, filing for bankruptcy last year.
Reuters first reported in August that Philadelphia Energy Solutions had tapped investment bank PJT Partners Inc (PJT.N) for advice on dealing with its near-term debt maturities, including a $550 million loan that comes due this year.
Philadelphia Energy Solutions will seek to restructure more than $100 million of its existing debt, and expects to complete the recapitalization process in the first quarter of 2018, according to the memo.
Reporting by Jessica DiNapoli and Jarrett Renshaw in New York; Editing by Paul Simao
January 21, 2018 at 06:37PM