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Philly refinery auction said to attract Chicago developer that rehabs industrial properties

The fate of the bankrupt Philadelphia Energy Solutions refinery complex, shut down since a catastrophic June fire and explosion, hung in the balance on Friday.

The Philadelphia Energy Solutions refinery in South Philadelphia. The fate of the bankrupt Philadelphia Energy Solutions refinery complex, shut down since a catastrophic June fire and explosion, hung in the balance on Friday.
The Philadelphia Energy Solutions refinery in South Philadelphia. The fate of the bankrupt Philadelphia Energy Solutions refinery complex, shut down since a catastrophic June fire and explosion, hung in the balance on Friday.Read moreMICHAEL S. WIRTZ / Staff Photographer

The fate of the bankrupt Philadelphia Energy Solutions refinery complex, shut down since a catastrophic fire and explosion last June, hung in the balance on Friday.

At least two bidders attended a closed-door auction conducted Friday at a New York City law firm handling the refinery’s bankruptcy. Results of the auction were not immediately disclosed.

The bidders included Philadelphia Energy Industries (PEI), a company formed by former refinery chief executive Philip Rinaldi that wants to resume refining petroleum on the 1,300-acre site, the largest refining complex on the East Coast.

According to sources, a second bidder, Hilco Redevelopment Partners, a Chicago real estate firm that specializes in developing old industrial sites into new uses, was also in contention.

A spokesman for Hilco declined to comment Friday.

Hilco is redeveloping the former Sparrows Point steel mill in Baltimore, a 3,100-acre waterfront site with deep-water access, into an industrial site called Tradepoint Atlantic.

Hilco is also remediating several sites of shuttered power-generation stations, including the proposed L Street Station mixed-use property in South Boston. Last year Hilco bought two New Jersey closed coal-fired plants, including one near Trenton, and plans to develop them into industrial ventures.

The auction may not necessarily result in a sale. If the refinery’s creditors decide the bids are too low, they could “credit bid” up to the amount they are owed and keep the property for themselves. Cortland Capital Market Services LLC is the lead bank on a $699 million term loan.

The 335,000-barrel-a-day refinery complex — actually two adjacent refineries with separate histories dating to 1870 — had struggled financially before the June 21 fire. It went through bankruptcy in 2018, and emerged owned primarily by its former creditors: Credit Suisse Asset Management and Bardin Hill Investment Partners, formerly known as Halcyon Capital Management.

The refinery’s most valuable asset is $1.25 billion in insurance, which covers property damage as well as economic losses from the interruption of business. The business interruption insurance kicks in 60 days after June 21 closure, and covers a period of up to two years, so it is unlikely the refiner will recover the full $1.25 billion.

Cortland Capital and another lender, ICBC Standard Bank PLC, which financed the refinery’s purchase and sale of crude oil and refined products, have competing claims over the proceeds from the business interruption insurance. Attorneys for the two sides argued their cases on Tuesday before U.S. Bankruptcy Court Judge Kevin Gross in Wilmington.

The court has set a Feb. 6 hearing date to confirm the bankruptcy plan, so the parties are under tremendous pressure to resolve outstanding issues, including a potential sale.

Fifteen potential bidders submitted written indications of interest, PES told the court last year, but the number of contenders was winnowed down during subsequent bid rounds. Final bids were due Jan. 10.

The Schuylkill waterfront property is the largest piece of real estate on the market in Philadelphia, but it is attractive primarily for industrial use because of legacy contamination from more than a century of oil refining.

A city report released in November encourages a refinery reuse that is “cleaner, safer, and better for Philadelphians,” but acknowledged that the site will likely continue as a petroleum processing or storage facility for the near future. The site’s existing infrastructure — one of the two refineries was undamaged by the fire — and its strong links to rail, highway, pipeline and water transportation make it well suited to the energy industry.

But analysts say the market for the refinery products — gasoline, diesel, jet fuel and heating oil — is amply supplied by other refineries. Profit margins for refiners are unattractive.

There is also mounting political pressure from refinery opponents to pressure the owners, and the bankruptcy court, to reject reviving the refinery.

Several dozen protesters, organized by activist groups Philly Thrive and the New York City branch of the Sunrise Movement, picketed Friday’s auction, conducted at the Manhattan offices of Kirkland & Ellis, the refinery’s bankruptcy lawyers.

»READ MORE: Philly refiner plans $120M plant to convert food scraps to fuel for trucks and buses

Elected officials have also weighed in with the bankruptcy court.

State Sen. Larry Farnese wrote a letter urging the judge to reject proposals that don’t align with the city’s climate goals. “This moment presents the greatest opportunity in Philadelphia’s history to redefine a future land use for such a large amount of land at one time," he said.

State Sen. Anthony Hardy Williams, in a separate letter asked the judge to require bidders to commit to hiring at least 60% of their workforce from city residents.

Environmentalists and nearby residents say the refinery presents a health risk.

An investigative report published Thursday by E&E News, NBC News and the Investigative Reporting Workshop, a nonprofit newsroom based at American University, showed that in May the refinery detected high levels of benzene. It said that the city failed to inform the public.

Benzene is a chemical linked with cancer and other diseases. The report said the average annual level of benzene at the plant had been at 49 micrograms per cubic meter of air, or five times the level at which the Environmental Protection Agency calls for corrective steps. But far higher levels are required before human health may be at risk, according to the federal Agency for Toxic Substances and Disease Registry (ATSDR).

The data were collected from air monitors PES operates under a consent agreement at the boundaries of its property. The fence-line measurements are raw data for public information, which the refinery posts on a website, Neither the city nor the EPA say they actively analyze the information, officials told The Inquirer in December.

There are no emission limits associated with fence-line data, David Sternberg, a spokesperson for the EPA’s Region 3 in Philadelphia, said last month. The EPA uses emissions data collected directly from various refinery units — point-source data — to tally up the plant’s output of pollutants. “Emission limits at PES are associated with specific point sources and not fence-line monitoring," he said.

Philadelphia’s Air Management Services, under the health department, operates 10 monitors around the city measuring ambient levels of air pollutants including benzene. The monitor closest to the plant, at 24th and Ritner Streets, never detected benzene amounts that would raise a public health alarm in the years prior to the fire, said James Garrow, a health department spokesman.

Benzene is a colorless hydrocarbon that smells like gasoline, and is found in many places, such as industrial solvents, paint thinner and gasoline. It evaporates quickly in the air, but lingers in soil and water. A known carcinogen, benzene also is found in car exhaust and emissions from burning coal and oil.

Staff writer Frank Kummer contributed to this article