After last-minute negotiations, judge picks winner in Philadelphia refinery auction

A U.S. bankruptcy court judge on Wednesday tentatively approved the sale of Philadelphia Energy Solutions’ shuttered refinery to a Chicago company, shutting the door on more than a century of oil refining in South Philadelphia and potentially dramatically changing the city ​​landscape.

” UPDATE: Sold: Hilco of Chicago is the new owner of the Philadelphia refinery and 1,300 acres

Judge Kevin Gross said he was satisfied that the $252 million offer from Hilco Redevelopment Partners – increased by $12 million during an eleventh-hour round of negotiations on Wednesday – was the highest offer and the best for the 1,300-acre site, occupied by the largest on the East Coast. oil refinery until its abrupt closure on June 21 after a devastating fire.

Gross also said the decision to sell to Hilco, which told city officials it planned to demolish the refinery and replace it with a mixed-use industrial park, was “clearly in the best interest of the community,” citing the “numerous and repeated problems.

After dealing with most of the objections on Wednesday, the judge said he would be ready to sign an order on Thursday confirming the refinery’s bankruptcy reorganization after lawyers representing various parties had a chance to review the document in the night.

There was an urgent need to close the deal by Thursday, a deadline set by the expiration of Hilco’s offer.

“The day after tomorrow, Hilco disappears, the plan disappears,” Gross told the packed Wilmington courtroom. “What is a judge supposed to do? Gross has scheduled a hearing for Thursday at 1 p.m., in case parties raise new objections he has not yet ruled on.

With final approval expected Thursday, Hilco would be in charge of developing Philadelphia’s largest available commercial real estate parcel. Environmental activists have long criticized the refinery as the city’s largest stationary source of air pollution. And, community activists want the site to be used for something more than a refinery after June’s catastrophic explosion served as a dramatic reminder of the risks posed by the fuel refining complex.

” LEARN MORE: What you need to know about the Chicago firm redoing the South Philly refinery site

However, the site will first have to undergo major environmental remediation after more than a century of oil refining. But it’s not immediately clear when that will happen and who will foot the bill.

On Wednesday, the Clean Air Council, a frequent legal opponent of the refinery, welcomed its permanent closure.

“Hilco must work with all stakeholders to capitalize on this opportunity to transform the site so that it protects our air, water, health and safety while driving economic development and well-paying union jobs,” said said Joseph Otis Minott, executive director of the council. A declaration.

Hilco’s experience in industrial property redevelopment includes the acquisition of former power plant sites in Boston and New Jersey, and the construction of warehouses on a former steel mill site in Baltimore.

The start of Wednesday’s hearing was delayed by nearly six hours as a frantic round of closed-door negotiations took place, resulting in settlements on most of the objections raised last week by unsecured creditors, the United Steelworkers union and other parties.

A competing development company, Industrial Realty Group, made a belated effort to bolster its bid and snatch the refinery from Hilco, which was selected after an auction Jan. 17. This apparently explained Hilco’s offer to increase its payout to $252 million from the previously agreed-upon $240 million.

The IRG had teamed up with former PES chief executive Philip Rinaldi, who wanted to restart the refinery. Rinaldi’s effort was supported by unions, including the United Steelworkers, which represented more than 600 of the refinery’s 1,100 workers.

Rinaldi said he was “very disappointed” with Wednesday’s result.

Ryan O’Callaghan, the president of Steelworkers Local 10-1 before he lost his job in the mass layoffs that followed the refinery’s shutdown, sat sullen during Wednesday’s hearing. “It’s not good,” he said.

Steelworkers International, however, signed a revised agreement after adding a $5 million severance package as payment to workers who lost their jobs. The new plan also includes guarantees from PES and Hilco that unionized workers would remain employed to maintain the refinery and continue to dispose of leftover fuels, a process that is expected to take at least a year. Hilco has also agreed to work with unions on future jobs at the site.

PES and its secured lenders have also agreed to set aside $20 million for unsecured commercial creditors, who can sign up and immediately receive a small portion of their claims – around 10 to 12 cents on the dollar – in exchange for the waiver of future legal claims.

“It’s far from a perfect outcome,” said Robert J. Stark, an attorney representing the committee of unsecured creditors, who agreed to withdraw his objections to the plan. He said the result made the best of a “horrible” situation. “We did the best we could with what we had.”

Assuming Gross approves the plan on Thursday, he could still face legal challenges, particularly from ICBC Standard Bank PLC, which lent the refinery millions of dollars just days before the explosion to finance its oil purchases. The bank is locked in an uphill battle with other lenders over who gets priority over the $1.25 billion in insurance claims the refinery has filed but have not been paid. This separate dispute is expected to take a long time to resolve.

The refinery complex was closed after the fire in June and a series of explosions destroyed a key unit on the Girard Point side. Girard Point is the larger of the two refineries on the site.

The largest refinery on the East Coast, PES processed 335,000 barrels of crude oil per day. But it has struggled over the past decade against competition from domestic and foreign producers, as well as the high cost of complying with federal renewable fuel standards that require ethanol to be blended into the fuel. As an older refinery, it needs a more expensive type of crude oil, which makes it harder to make a profit.

The refinery experienced a tight shutdown in 2012 when its former owner, Sunoco Inc., threatened to shut it down. But a coalition of Democrats, Republicans, labor and business leaders staged a rescue, aided by $25 million in state grants and waivers from federal environmental regulators. A majority stake was transferred to the Carlyle Group, a private equity firm.

The Carlyle-led ownership group declared bankruptcy in 2018, from which PES emerged a few months later under new ownership led by its former creditors, Credit Suisse Asset Management and Bardin Hill Investment Partners. But the refinery was not relieved of its debt and still faced fundamental competitive disadvantages.

He no longer has the same kind of bipartisan political support he had in 2012, when the region was emerging from recession and fossil fuels weren’t the unifying target they have become for climate activists.

After the fire, a spokesman for Governor Tom Wolf said the state would not accept new fiscal support to restart the PES. City officials conducted a series of public hearings last year, exploring new directions for the refinery site, produce a report in November that encouraged “cleaner, safer and better for Philadelphians” reuse.

As environmentalists and community activists rallied for the refinery’s permanent closure, unions lent support to political and business efforts to resume operations.

President Trump’s trade adviser Peter Navarro last month threw the moral support of the administration behind a plan to keep the refinery open, citing its importance to national security and energy independence.

The environmental cleanup of the contaminated site is also a major unresolved issue. Sunoco, the former owner, is responsible for remediating the soil and has agreed to place deed restrictions on the property that limit its reuse for purposes other than refining.

Hilco’s offer was conditional on obtaining covenant changes by May 31, when it is expected to close the sale or exit. John Mitchell, an attorney representing Sunoco, said at Wednesday’s hearing that the company and Hilco had reached an agreement addressing environmental issues, details of which would be included in the final plan.