A bankruptcy judge has approved a last-minute $26.5 million cut in the price originally agreed to by Philadelphia Energy Solutions and the development company that plans to purchase the refinery complex in South Philadelphia. The deal is now expected to close Friday.
On June 6, Hilco Redevelopment Partners asked U.S. Bankruptcy Court in Delaware for a break on the original $252 million price it agreed to pay earlier this year for the 1,300-acre site, according to court documents. After negotiations, parties to the PES Chapter 11 bankruptcy, with the exception of two lenders, agreed to a $27.5 million discount.
During a remote hearing Thursday morning, Bankruptcy Judge Laurie Selber Silverstein agreed to amend the original purchase agreement after representatives of PES said they had reached an agreement with the two objectors, Marble Ridge Capital LP and Serengeti Asset Management LP, by lowering the price reduction by $1 million.
“This will resolve all objections,” said attorney Matthew Fagen, who was representing PES. He added that approval of the amended agreement was “vital and necessary” to ensuring that the deal closed on schedule.
“In an imperfect world, I think this is the right solution at this juncture,” said Paul Silverstein, representing the objectors.
The price reduction does not affect a $5 million severance fund for formerly unionized refinery workers or a $20 million settlement with Philadelphia Energy Solutions’ unsecured creditors. The only class affected, as established by PES representatives, is the term loan secured creditors.
With the approval of the amended agreement — which includes Hilco’s commitment to pay a penalty of about $350,000 per day after the original deadline for closing, May 31, passed — and a new firm closing date of no later than June 26, Fagen said PES was ready to finalize the deal Friday.
“I look forward to seeing the notification of the closing,” said Judge Silverstein.
Sale of the refinery complex sale to Hilco, which intends to redevelop the site as a multimillion-dollar logistics and distribution center, will officially end 150 years of oil refining in South Philadelphia. And it gives closure to an important piece of the lengthy and complicated restructuring process that started after the massive June 21, 2019, explosion and fire that led PES into Chapter 11 bankruptcy for the second time in two years.
Why a price reduction?
In his June 6 letter to PES requesting a lower price, Hilco CEO Roberto Perez cited the economic uncertainties brought on by the coronavirus pandemic, as well as increased environmental remediation costs and expenses related to a bulkhead breach on the site, according to court documents.
The Chicago-based developer, which has committed to paying $500 million toward the environmental cleanup and to creating 18,000 jobs in the next 10 years, also is asking for an extension of tax breaks for the property.
PES representatives argued that negotiating a price reduction with Hilco was the shortest and cheapest alternative they had, under the current circumstances, and the one that ensured the best interest for all parties. Other alternatives would have implied starting the sales process all over again, considering litigation against Hilco, or negotiating a sale with the backup-bidder, Industrial Realty Group in partnership with former Philadelphia Energy Solutions CEO Phil Rinaldi, who intended to keep the refinery operating.
“Based on my independent assessment as chief restructuring officer and as a member of the restructuring committee of the board, I still believed — and continue to believe — that the value maximizing path forward is entering into the amendment … with HRP,” PES’s Jeffrey S. Stein wrote the court.
According to court documents, Hilco has already reached an agreement with Sunoco/Evergreen, the former owner of the refinery responsible for the environmental remediation of legacy pollution at the site through 2012, in a pending deed modification needed to move ahead with the property’s redevelopment. Hilco also received approval from the Pennsylvania Department of Environmental Protection for a soil management plan.
On Monday, environmental activists and South Philadelphia residents marked the one-year anniversary of the blast that shut down the PES refinery with a rally.
When it was operating, the refinery was the biggest stationary source of pollution in Philadelphia. For years, neighbors claimed fumes coming out the refinery had negative effects on their health. They hope Hilco, the new owner, will include their interests in the coming redevelopment process.
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