Bankrupt PES says Philly refinery restart is a ‘fantasy’ and urges court to approve sale to developer

Philadelphia Energy Solutions on Monday urged the U.S. Bankruptcy Court to approve the sale of its shuttered South Philadelphia refinery complex to a Chicago real estate firm that plans to redevelop the 1,300-acre site, saying efforts to promote a return to oil-refining were a “fantasy.”

PES lawyers, in court filings, defended a proposed reorganization plan that includes a $240 million sale to Hilco Redevelopment Partners of Chicago. The plan promises “billions of dollars of investment into the site to transform the debtors’ business from a destroyed refinery complex to a mixed-use industrial site.” The refinery shut down following a June 21, 2019, fire and declared bankruptcy in July.

U.S. Bankruptcy Court Judge Kevin Gross has scheduled a hearing Wednesday in Wilmington to confirm the reorganization plan.

PES, in two filings that totaled more than 300 pages, attempted to clear the wreckage from a multi-car pileup of objections filed last week to its reorganization plan from the committee of unsecured creditors, the U.S. Trustee, the U.S. Environmental Protection Agency, the United Steelworkers Union, and others.

The fire-damaged refinery, after 150 years of producing fuel and chemicals from crude oil, and after going through three owners and two bankruptcies since 2012, may no longer be an attractive investment in a world oversupplied with oil. The bankruptcy “is the result of the tremendous damage caused by the accident and market realities, not the debtors,” PES said in its filing.

The company called the Hilco offer the best and most realistic option it received after months of shopping the property to prospective buyers. No credible bidder offered to resume refining operations at the site, despite “extreme measures" to find a new refinery operator,” PES said.

A bid by rival developer Industrial Realty Group of Santa Monica, Calif., was $25 million greater than Hilco’s, but came with only a $5 million deposit compared with Hilco’s $30 million deposit. Supporters of resuming refining operations have also characterized IRG’s proposal as a refinery restart, but PES said the bidder did not present it that way at the auction.

“From the outset of the sale and marketing process, the debtors made every effort to encourage a sale to a going-concern buyer,” PES said in its filing. “But the debtors were unable to find a refinery restart bidder with the financial and operational wherewithal to complete the sale.”

Much of the company’s response on Monday was directed at the committee of unsecured creditors, which on Friday urged the judge to reject the plan, calling it “an artifice for doling out control, bonuses, and releases to insiders,” and unfairly leaving out unsecured creditors. The unsecured creditors include suppliers and vendors who are likely to receive only a small portion of the more than $1 billion they are owed.

PES denounced the committee’s “mud-slinging” and “blanket attacks,” and said the committee “completely ignores” the reorganization plan’s benefits.

“The plan is a good and fair result, satisfies the standards for confirmation, and should be confirmed.”

PES said the committee’s request to convert the Chapter 11 reorganization plan to a Chapter 7 liquidation plan was “nonsensical,” and would result in greater harm to all creditors.

And PES brushed aside the committee’s plea for the judge to suspend implementation of the plan, should he approve it. “This unique request effectively concedes defeat; no party confident in its position seeks a stay pending appeal before they have even lost,” the PES lawyers said.

The company also defended its request to pay eight top executives as much as $20 million in bonuses if the company generates $1 billion in net proceeds from a sale and an insurance recovery.

“The debtors’ already short-handed management team has worked tirelessly since the day of the disaster — which came about through no fault of their own — in a function that far exceed the hours, effort, and stress of their original roles,” it said.

The company’s court filings shed new light on the auction process, and the effort of a group led by retired PES chief executive Philip Rinaldi to organize a refinery restart

PES said it shared more than 5,000 documents with the “Rinaldi Party,” answered 133 diligence questions, and set up five site visits or meetings with management and the Rinaldi team. It said it also took “the unusual step” of arranging an in-person meeting between the Rinaldi team and the unsecured creditors in December.

“But despite the debtors’ diligent efforts and engagement, the Rinaldi Party did not submit a bid, qualified or otherwise, in the third round of bidding,” PES said.

The only bidder in the third round who contemplated a restart of the facility — not Rinaldi — was “massively lacking in numerous respects,” and did not participate in the auction after failing to obtain financing, PES said. The bidder, whose name was not disclosed, had also contemplated a sale price that was “far lower” than either Hilco’s or IRG’s, it said.

Hilco had initially bid $154 million for the property in qualification rounds, according to a deposition from John Singh, a partner with PJT Partners LP, the investment banker that supervised the sale and auction.

But when the price escalated in the auction, and Hilco boosted its offer to $240 million, it also declined to be the backup bidder if PES awarded the sale to IRG, and then IRG later backed out. That meant that if a deal with IRG dissolved after 30 days, Hilco’s offer would have reverted to its initial $154 million offer — or even less, Singh said.

PES also said that Hilco, which is operating under the name HRP Philadelphia Holdings LLC, has engaged in discussions with the Pennsylvania Department of Environmental Protection on a soil remediation plan, and with Sunoco Inc., a previous refinery owner, to resolve indemnity and deed restrictions. Resolution of both those matters by May 31 is a condition for Hilco to close the deal.