PES up against the clock to sell Philadelphia refinery in cash crunch
Finding a buyer for Philadelphia Energy Solutions’ oil refinery has grown urgent as the bankrupt company’s funds dwindle and no signs emerge that it is winning a fight for insurance payouts after a June blaze at the plant, according to court documents and bankruptcy experts.
Without access to the more than $1 billion in insurance coverage, selling the refinery has become one of the company’s only options to raise cash before being forced to liquidate.
At least three parties have potential proposals to buy the shut Philadelphia refinery, each with plans to reopen the 1,300-acre (5.3-square km) site with a mix of oil refining and alternative energy production, sources familiar with the plans said.
Initial meetings are scheduled between the prospective buyers and a collection of vetters over the next several weeks, but it is unclear how long it would take for any official bid to come together, the sources said.
PES was not available for comment on whether it had reviewed any of the proposals or how viable it considered them to be.
For the second time in less than two years, PES filed for Chapter 11 bankruptcy on July 21, exactly a month after fire and blasts destroyed an alkylation unit at the 335,000-barrel-per-day refinery.
PES shut its final crude unit in late July, and more than 600 workers are in the process of being laid off without severance pay or the option for continued health insurance.
The company has no prepackaged arrangement to restructure the business or income from running the refinery, the largest in the U.S. Northeast, raising the likelihood it will be forced to liquidate.
“They’re playing a game against the clock,” said Christina Simeone, a senior fellow at the Kleinman Center for Energy Policy at the University of Pennsylvania, who wrote a report last year predicting the refinery would close by 2022 due to poor economics.
To emerge from bankruptcy, PES needs to tap into $1.25 billion in property damage and loss of business insurance coverage, according to court filings. So far, PES has been denied requests for payment, and at least one creditor has surfaced to fight for any future insurance proceeds. Seven others are objecting to PES’ bankruptcy plan.
It is unclear how much is left of the initial $65 million bankruptcy loan PES secured at the start of the process, which is needed to pay for attorneys, wind down the massive refinery complex, utility bills and salaries.
PES recently asked the court to retain law firm Kirkland and Ellis for $4.6 million and another firm for $1 million, according to court documents.
On Friday, the U.S. Trustee appointed to the bankruptcy case objected to Kirkland and Ellis, saying the firm has represented PES’s largest equity holders in unrelated matters, creating a potential conflict of interest, court documents show.
“Given the incident which precipitated the filing of this Chapter 11 proceeding, there is a strong likelihood that the assets of the debtor will be liquidated rather than reorganized,” the trustee wrote in court documents.
PES hired investment bank PJT Partners about two weeks ago to market the site. PJT declined to comment on its efforts to find a buyer.
Companies in Chapter 11 bankruptcies generally face two scenarios when attempting to sell assets, said Eric Snyder, a bankruptcy expert and partner at New York-based law firm Wilk Auslander, who is not working on PES’ case.
With the luxury of time, companies can enter into an agreement with a single bidder to be decided on by a bankruptcy court judge. Or, they can hold a bare auction, opening up the sale to all qualified bidders for a set period of time.
If no deal comes together before the company runs out of money, it could be forced to start Chapter 7 liquidation, Snyder said. Chapter 11 is a generally better outcome for creditors, as assets tend to fall in value during liquidation, which would leave them with less chance to collect on what they are owed.
“It’s in the creditors’ best interest to try to make it through Chapter 11, but for people interested in the PES site for future uses, it’s far better for it to go to Chapter 7,” the Kleinman Center’s Simeone said.