After fire, Philadelphia refinery paid executives $4,591,500 in bonuses while hundreds were laid off

Philadelphia Energy Solutions paid out about $4.6 million in retention bonuses to eight key executives after a devastating June fire closed the giant Schuylkill River refinery complex, but before the company declared bankruptcy, court records show.

Most of the payments were made on July 5, while PES was in the process of closing the East Coast’s largest refinery, according to a filing with the U.S. Bankruptcy Court in Delaware. At the time, the refinery had announced plans to permanently shut the fuel complex and lay off most of its 1,100 employees without severance pay or health insurance coverage.

“It’s repulsive that they did that,” said Ryan O’Callaghan, a spokesperson for Steelworkers Local 10-1, which represents refinery workers. “While they’re telling everybody else they’re poor, bankrupt, had nothing for severance and canceled the medical benefits plan, ... they stuffed their own pockets.”

The payments were disclosed in financial documents filed Friday with the court. Representatives of the refinery and its lawyer could not be reached for comment on Tuesday. The bonuses were first reported by Reuters.

Retention bonuses are sometimes awarded to incentivize employees to remain at a troubled company during bankruptcy proceedings, when it is difficult to recruit new talent to work at a company that may be sold, or closed.

But paying retention bonuses before a bankruptcy filing is a “little trickier,” said Jonathan Lipson, a bankruptcy expert at Temple University’s Beasley School of Law. Changes to the federal bankruptcy code in 2005 encourage companies to submit key employee retention plans to the court for approval, and to tie bonuses to performances that can be demonstrated when the company emerges from bankruptcy.

“Key employee retention bonuses are not that uncommon in bankruptcy, but it is uncommon to pay them before bankruptcy knowing that you’re going to go into bankruptcy," Lipson said. Such bonuses might be challenged by a committee of unsecured creditors, or by a bankruptcy trustee if one is appointed.

The retention bonuses paid by PES were not included in a formal plan submitted to the court, but listed without comment in a 204-page financial report submitted to the court.

Chief executive officer Mark Smith received a $1.545 million retention bonus, according to the filing. Smith, who previously worked as president of refining and marketing at Western Refining Inc., was hired only last August.

General counsel John McShane received $875,500, chief financial officer Rachel Celiberti got $721,000, and deputy general counsel Anthony Lagreca received $450,000. Refinery manager Daniel Statile, who was hired in March, was paid $325,000.

In addition, Mark Brandon, vice president of strategy and development, received a $250,000 retention bonus, Stephanie Eggert, vice president of business planning, got $150,000, and Bradley Galante, vice president of supply and trading, received $150,000.

The executives also received payments for unused vacation time ranging from $27,000 to $65,000 on June 27, as did the remainder of the workforce after they were told the refinery was going to shut down permanently.

The refinery also paid “spot bonuses” of $75,000 to Celiberti and $50,000 to Lagreca on June 21, the day of the fire and explosion that shut down the refinery.

“While the refinery was still on fire, they’re not thinking about starting the refinery right then, they’re already thinking about shutting it down, that’s what it’s telling me,” said O’Callaghan, who was among the more than 500 unionized workers who lost their jobs.

Rather than paying severance bonuses to unionized workers, PES in August agreed to set up a “transition fund” of $2.8 million to be divided equally among union workers who were not among the 83 employees retained as “caretakers.”

The company’s board of directors did not receive bonuses, but the company also made a $772,5000 initial payment for annual consulting duties to chairman Mark Cox on July 2.

U.S. Bankruptcy Judge Kevin Gross, who is supervising the refinery’s bankruptcy, is also overseeing the restructuring of Hahnemann University Hospital, which announced its closure the same day as the refinery.

The 1,300-acre PES refinery complex shut down operations in July, but is still undergoing cleanup following the fire and explosions. Several federal agencies are investigating the cause of the fire, which slightly injured five refinery workers, none requiring hospitalization.

The complex, which is actually two historically separate refineries that were merged under the common ownership of Sunoco Inc., has struggled financially for a decade. Sunoco transferred much of its interest in 2012 to the Carlyle Group, a private equity investor, to form Philadelphia Energy Solutions. PES went through bankruptcy last year, and is now owned primarily by its former creditors, Credit Suisse Asset Management and Bardin Hill Investment Partners, according to the bankruptcy filing.

» READ MORE: Explosion-damaged South Philadelphia refinery files for bankruptcy, again

The company announced last month it has launched a “structured process” to solicit interest in acquiring some or all of the refinery assets. PES has retained PJT Partners as its investment banker to assist with this process.

Several potential bidders, including retired PES chief executive Phil Rinaldi, have said they are interested in bidding on the refinery. But PES, in an Aug. 29 statement, said it is evaluating a full range of options to maximize the refinery’s value, including rebuilding and restarting the complex.

“At this time, it is far too early in the strategic process for PES or others to be making any public statements regarding the future direction of PES and the refinery complex,” the company said.