Philadelphia Energy Solutions, which abruptly announced its shutdown following a devastating fire and explosion last month, has filed for its second Chapter 11 bankruptcy in less than two years, the company announced Monday.
PES said it has obtained up to $100 million in debtor-in-possession financing from creditors to maintain the 1,400-acre facility while it goes through the bankruptcy process, and while investigators continue to examine the June 21 fire and explosion that injured five workers and destroyed a critical processing unit.
“This proposed financing provides the company with a strong financial foundation to support existing operations, undertake the work necessary to ensure the refinery complex is safely positioned for rebuilding, and restart and complete its reorganization process,” the company said in a statement.
The refinery, the largest on the East Coast, emerged from bankruptcy a year ago under new ownership and management, but unrelieved of debt and facing fundamental competitive disadvantages. It is an older refinery that needs a more expensive type of crude oil and competes in a market easily reached by pipeline and ships from overseas
Several buyers have reportedly offered to acquire the industrial property in South Philadelphia, though it’s not clear that they want to run it as a refinery.
“There’s a lot of tire-kicking,” said Philip Rinaldi, the former chief executive of PES, who retired at the end of 2017 and is organizing an effort to restart the complex.
But Rinaldi said that if the bankruptcy drags out, that will make it more difficult to organize a rescue. “If this results in a long, drawn-out process, that’s not good for me,” he said.
Refinery sources said that the plant’s unaffected units continue to process crude oil that was delivered before the accident, but the site is not taking any new shipments of petroleum.
“I don’t think the bankruptcy filing was unexpected," said Ryan O’Callaghan, president of Steelworkers Local 10-1, which represents more than 600 refinery workers. "We’re just hoping a responsible investor steps forward."
“We’ll roll with the punches,” said O’Callaghan. “We’ve been through this before.”
The refinery experienced a close brush with closure in 2012 when its previous owner, Sunoco Inc., threatened to shut it down. But a coalition of Democrats, Republicans, labor and business leaders engineered a rescue, assisted by $25 million in state grants and waivers from federal environmental regulators.
But in the aftermath of an explosion that shook South Philadelphia, the refinery no longer enjoys the same kind of bipartisan political support it had in 2012, when the region was emerging from recession and fossil fuels were not the unifying target they have become for climate activists. A spokesman for Gov. Tom Wolf told Reuters on July 10 that this time around, the governor would not support additional tax support to restart PES.
The site contains a large amount of logistical infrastructure, including storage tanks, pipelines, and connections to port and rail. It is also seriously polluted, and will likely require environmental remediation.
The refinery said it expects to "establish an orderly process for the evaluation of a range of potentially value-maximizing transactions in the weeks ahead and to work expediently with its insurers, stakeholders, and third parties toward our goal of reaching a consensual plan, rebuilding the damaged infrastructure and resuming refining operations.”
In its petition filed Sunday with U.S. Bankruptcy Court in Delaware, the company said it had appointed Jeffrey S. Stein, a New York distressed-debt adviser, as chief restructuring officer to manage the company’s reorganization.
PES has largely wound down operations in the month since the accident, and said it will keep about 1,000 remaining workers on the payroll until Aug. 25.
» READ MORE: Refinery explosion: How Philly dodged a catastrophe
The 335,000-barrel-per-day refinery complex — actually two adjacent refineries with separate histories — has struggled financially for years. Philadelphia Energy Solutions was formed in 2012 by Carlyle Group and Sunoco Inc. to rescue the facility. PES filed for bankruptcy the first time in January 2018.
The new ownership, led by banks that were former creditors, once again slumped under heavy debt, as cash reserves dwindled and the refinery shortened a maintenance outage this year to conserve resources.
According to reports filed under the 2018 bankruptcy proceeding, the refinery’s long-term debt increased 7.5 percent during the first quarter of this year, to $755 million. More than $500 million was to come due in 2022, a deadline that became more imposing in the aftermath of the accident.
At the end of March, the refinery listed assets of $1.69 billion and liabilities of $1.6 billion — less than $90 million in owners’ equity remained in the refinery three months before the accident. Five days after the accident, the refinery announced plans to shut down.
The fire is under investigation by the U.S. Chemical Safety Board, the Occupational Safety and Health Administration, the Bureau of Alcohol, Tobacco, Firearms, and Explosives, and the Fire Marshal’s Office.
The investigations, especially by OSHA, will be critical to determining whether there was any negligence that contributed to the accident, which might impact a potential insurance settlement.
Following last year’s bankruptcy, PES now is owned primarily by its former creditors. Credit Suisse Asset Management holds 29.4 percent of the shares and Bardin Hill Investment Partners, formerly known as Halcyon Capital Management, owns 26.7 percent, according to the bankruptcy filing.
Carlyle retains a 15 percent share and Energy Transfer Partners LP, Sunoco’s parent, has a 7.4 percent share. Activist investor Daniel S. Loeb’s Third Point Loan LLC holds a 7.3 percent share.
A group of former PES managers, led by Rinaldi, still holds 2.7 percent of the company.
Last year’s bankruptcy was a pre-packaged reorganization that allowed the refinery to continue operations while it was under court review. The petition filed Sunday does not include a clear map on how the company may emerge.
The top three unsecured creditors are all related to the refinery’s crude-by-rail operations: Trinity Industries Leasing Co., a rail-car leasing firm, is owed $4.1 million; CSX Transportation Inc., $3.9 million; and BNSF Railway Co., $3.4 million.
A 392-page document lists nearly 4,000 potential unsecured creditors without disclosing amounts owed.
One issue that was resolved outside of last year’s bankruptcy proceeding was a $3.8 billion claim filed by the Pennsylvania Department of Revenue for uncollected fuel taxes and sales taxes. The amount, which has been cited by climate activists, was monumental -- more than double the assets of the entire company.
The back-tax claim was resolved after the Revenue Department audited PES and assessed sales tax due of about $292,000, said the refinery’s spokesperson, Cherice Corley. The amount was assessed on products the refinery purchased from vendors that did not collect sales taxes. The audit determined that no fuels taxes were owed — those were paid by wholesalers who buy product from the refinery and resell it.
A spokesman for the state taxing agency said the initial claim of $3.8 billion was a “protective estimate,” which is routinely filed in bankruptcy proceedings.
“Through the case, the parties worked together and the department reclassified its claim into a more accurate figure once the audit had been completed,” Jeffrey Johnson, Revenue Department spokesperson, said in an email. “The claim was settled outside of the bankruptcy proceedings.”
The state still has an unresolved claim of $87,000 against PES for penalties associated with the unpaid sales taxes.