A year after a devastating fire shut down the Philadelphia Energy Solutions refinery, a Chicago development company on the verge of buying the bankrupt 1,300-acre property is seeking a last-minute break in the sales price, in addition to an extension of tax breaks on the property.
Hilco Redevelopment Partners, which agreed in February to pay $252 million for the property, has renegotiated a price cut of $27.5 million, under a proposal that PES submitted last week to U.S. Bankruptcy Court. Under the deal, Hilco also agreed to close the sale by Friday.
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Hilco requested the price cut on June 6, saying it needed the discount because of economic uncertainty due to the coronavirus pandemic, increased environmental remediation costs, and costly damage to a refinery bulkhead that occurred since it won the right to buy the property.
But two lenders who together are owed more than $80 million from the refinery objected to the price reduction, saying that PES has ”succumbed to the purchaser’s meritless and empty threats.” The lenders, Marble Ridge Capital LP and Serengeti Asset Management LP, asked the court to reject the price cut and order Hilco to live up to the original purchase agreement.
U.S. Bankruptcy Judge Laurie Selber Silverstein on Monday scheduled a hearing for Thursday on the amended purchase agreement. During a conference with lawyers, she said she wanted to hear legal arguments for cutting the price, because it is “not intuitive to me” how the pandemic has created a problem for the transaction.
The eleventh-hour drama threatens to unravel a complex deal that could set a new course for the refinery complex, which closed a year ago after the 2019 fire and explosion, putting more than 1,000 employees out of work. Hilco has said it plans to clear much of the refinery property and redevelop the land as a mixed-use industrial complex.
Hilco’s price-cut demand seems to have boxed in PES. In a court filing, the bankrupt company said it could nix the Hilco sale, try to retain the company’s $30 million deposit, and sell the property to a backup bidder. But that process would result in “value-destructive litigation” that would delay the sale of the property even longer, and likely yield a lower price, PES said. And PES said it “was not a close call” to agree to the reduction.
Hilco’s demand, which would reduce the proceeds for the refinery’s creditors, came two days after Philadelphia City Council introduced legislation that would extend the refinery’s Keystone Opportunity Zone status, which was granted in 2014 and is now set to expire in 2023. Businesses in Keystone Opportunity Zones pay little to no state and local business taxes through an assortment of tax credits, tax waivers, and tax abatements.
The tax-break extension, which was introduced by Councilman Kenyatta Johnson, has triggered opposition from Philly Thrive, a progressive environmental-activist group that on Monday conducted a march on the refinery site to commemorate the fire’s anniversary. “We believe that Hilco should be paying taxes and revenue for that site, and the tax revenue should be spent on economic and environmental justice,” said Josh Friedman, a Philly Thrive spokesman.
The activists tied their Monday demonstration to recent protests against systemic racism, and demanded that Hilco commit to involving residents in planning and decisions for refinery cleanup, redevelopment, and community benefits.
“As soon as plans start happening without us at the table, we’re going to let them know that’s just not going to fly,” said Alexa Ross, a cofounder of Philly Thrive.
Hilco declined to comment, saying the matter was pending before the court.
In an affidavit filed with the bankruptcy court, the refinery’s chief restructuring officer, Jeffrey S. Stein, laid out the tortured history of the PES bankruptcy and the elaborate efforts to sell the property, culminating in the January auction in which Hilco prevailed over its only rival, Industrial Realty Group. Stein said Hilco’s late demand to renegotiate the price presented it with a series of unattractive options that would only increase the risk any deal would collapse.
PES responded to Hilco’s demand, laid out in an email by Hilco Redevelopment Partners chief executive Robert Perez, by agreeing to a $27.5 million price reduction. But the price cut would be offset by an escalating scale that would incentivize Hilco to settle quickly. If Hilco closes the sale on Friday, the net price reduction would amount to $18.5 million, or a final price of about $233.5 million.
PES said that key parties to the bankruptcy agreed to the price cut, including most term-loan lenders and the creditors committee. The agreement would not disturb $5 million in payouts to the more than 600 unionized workers who were laid off, nor $20 million set aside for unsecured trade creditors, who can opt in and immediately receive a small portion of their claims — about 10 to 12 cents on the dollar — in exchange for dropping future legal claims.
PES did not identify the lenders who didn’t agree to the renegotiated price, but said they failed to provide any additional credit to the refinery to pay its ongoing expenses while it mounted a legal fight against Hilco.
Marble Ridge argued in the conference call on Monday that Hilco intentionally delayed completion of the sale by a May 31 deadline, forcing a purchase price reduction.
“Now, shamefully under the guise of the COVID pandemic and sour grapes, Hilco is seeking to blatantly disregard its contractual obligation at the expense of the company’s stakeholders and present them with the Hobson’s choice to either accept Hilco’s radically redefined and unfair economic terms or force the company into an administratively insolvent liquidation where unsecured creditors would receive nothing,” the lender said.