Philly's PES refinery, the East Coast's largest, seeks debt relief
The owner of the South Philadelphia refining complex, which has experienced a boom-and-bust life including a near-death experience five years ago, has engaged an investment bank to find relief from its debts.
Philadelphia Energy Solutions (PES) L.L.C. has hired investment bank PJT Partners Inc. for advice on how to manage some of its $700 million in debt, including a $550 million loan that comes due in 2018. The company’s move was first reported by Reuters.
“While these discussions are ongoing, operations are unaffected and it remains business as usual,” the company said in a statement. The 335,000-barrel-per-day refinery, the largest on the East Coast, employs 1,100 people, and about 500 contractors.
PES, a joint venture of private-equity firm Carlyle Group LP and former refinery owner Sunoco Inc., took on the debt when oil prices were high, profit margins were fat, and the refinery enjoyed an unexpected boom in discounted domestic crude oil brought in by rail.
But the worldwide fall of crude prices in 2015, along with the lifting of the oil exports ban that reduced the discount for crude from North Dakota’s Baaken Shale formation, has cut into the refiner’s margins.
PES has also complained about the soaring price for renewable energy credits, which now cost the company about $300 million a year, its greatest cost after buying crude oil. Merchant refiners such as PES are required to buy renewable energy credits for each gallon of ethanol that is blended into gasoline, which they say puts them at the mercy of an unregulated market of speculators.
“Philadelphia Energy Solutions is currently assessing its capital structure with the goal of improving financial flexibility in light of current market and regulatory challenges that have affected the company’s profitability,” the company said in a statement.
“We are working constructively with our lenders to find a solution that will enable us to move forward with the right financial foundation to support our business into the future.”
Carlyle and Sunoco formed PES in 2012 to take over the refinery from Sunoco, which had threatened to close it. It received $25 million state grants, tax breaks, and environmental-liability waivers. Sunoco, which has a noncontrolling one-third share, was later acquired by Energy Transfer Partners LP.
The new owners revived the business with $700 million in new investments, including a rail-unloading terminal that allowed the facility to tap into a virtual pipeline of low-cost domestic crude-oil shipments. It took on the $550 million loan in 2013 to finance capital projects and to pay dividends to Carlyle and Sunoco.
In 2015, the company valued itself at $1.3 billion in an attempt to take PES public, but the oil markets shifted and the initial public offering sputtered.
As its fortunes swooned last year, PES forced employees to pay more for their health plans and suspended pension contributions. United Steelworkers Local 10-1, which represents 750 unionized workers at PES, has threatened to strike unless the cuts are rescinded.
The company’s efforts to seek debt relief come only a month after investment-research firm Morningstar reported that PES; Monroe Energy in Trainer, Delaware County; and the Bayway Refinery in Linden, N.J., have rebounded from the loss of cheap North Dakota crude and “are performing better than expected this year.”
