(P3P) – Philadelphia Power Options LLC, the proprietor of the most important U.S. East Coast oil refining complicated, introduced to its workers on Sunday that it plans to file for Chapter 11 chapter, in accordance with an inner memo reviewed by P3P.
The chapter would come six years after personal fairness agency Carlyle Group LP (CG.O) and Power Switch Companions LP’s Sunoco Inc rescued Philadelphia Power Options from monetary misery, in a deal that was supported by tax breaks and grants that saved 1000’s of jobs.
Following an settlement with its collectors, the corporate has secured entry to $260 million in new financing, and mentioned it anticipated the chapter submitting to don’t have any rapid influence on its workers, in accordance with the memo, which was confirmed by a spokeswoman for Philadelphia Power Options. The spokeswoman declined to remark additional.
Philadelphia Power Options owns two refineries, Girard Level and Level Breeze. It could possibly convert about 335,000 barrels of crude oil per day to merchandise resembling gasoline, jet gasoline and diesel. It employs about 1,100 individuals.
A part of the refiner’s monetary troubles stem from a pricey biofuels regulation referred to as the Renewable Fuels Commonplace, which is run by the Environmental Safety Company and requires refiners to mix biofuels into the nation’s gasoline provide yearly, or purchase credit from those that do.
Since 2012, Philadelphia Power Options has spent greater than $800 million on credit to adjust to the regulation, making it the refiner’s greatest expense after the acquisition of crude, in accordance with the memo.
The Philadelphia refinery’s struggles have emerged as a possible flashpoint within the debate between Huge Oil and Huge Corn over the way forward for the Renewable Fuels Commonplace.
Critics have argued the corporate’s woes are an instance of what’s fallacious with this system, whereas supporters say the corporate’s troubles are extra carefully associated to its lack of entry to cheaper crude oil provides.
The $260 million in financing secured by the corporate entails $120 million in debtor-in-possession and exit financing, $75 million in extra capital from Sunoco Logistics, and a $65 million fairness funding from the corporate’s shareholders, led by Carlyle together with the refiner’s administration.
East Coast refiners have decrease revenue margins than different refineries throughout the nation, largely due to a reliance on crude imports from West Africa and different markets.
Philadelphia Power Options had robust income in 2014 and 2015 due to investments in rail terminals that allowed the refiner to usher in discounted Bakken crude oil in mile-long trains from North Dakota.
However the increase turned to bust by the tip of 2015 as oil costs plummeted and the low cost for North Dakota crude disappeared. The fallout hit oil and fuel explorers and producers laborious, with scores of them, resembling Linn Power Inc and Breitburn Power Companions LP, submitting for chapter in 2016.
LOAN COMES DUE EARLY THIS YEAR
Earlier than Carlyle took over the complicated, Philadelphia Power Options was a “zombie” refiner susceptible to being shuttered following the monetary disaster, when demand for oil evaporated. In bringing in Carlyle as a majority investor in 2012, Sunoco agreed to contribute to the refinery’s belongings and be a non-controlling associate.
The refinery house owners loved a taxpayer-funded rescue package deal, which included the creation of a tax-friendly zone, $25 million in grants and environmental legal responsibility waivers.
The corporate took on a $550 million mortgage that comes due early in 2018 to complete capital initiatives and pay out dividends to Carlyle and Sunoco.
Carlyle, which invested $175 million in 2012 in trade for two-thirds of Philadelphia Power Options, withdrew its plans to take the corporate public in 2016 at an anticipated valuation of $1.three billion. In the identical years, Carlyle additionally tried unsuccessfully to promote Philadelphia Power Options.
Philadelphia Power Options has additionally been grappling with its labor union, which threatened to strike final summer season except cuts to advantages had been restored.
P3P first reported in August that Philadelphia Power Options had tapped funding financial institution PJT Companions Inc (PJT.N) for recommendation on coping with its debt burden.
Philadelphia Power Options will search to restructure greater than $100 million of its present debt, and expects to finish the recapitalization course of within the first quarter of 2018, in accordance with the memo.