U.S. Bankruptcy Court Judge Kevin Gross approved a request by Philadelphia Energy Solutions for a $65 million loan from debtor-in-possession financing Tuesday, as the company’s Chapter 11 case opened in Wilmington.
The company says the goal after Chapter 11 reorganization is to rebuild and continue to operate its South Philadelphia refinery complex.
In June, after a fire and explosions destroyed 57 percent of its capacity, the company announced it would shut down operations at the 1,300-acre complex, which consists of two refineries. The fire affected the alkylation unit at the Girard Point refining facility, which is currently inoperable and will require extensive rebuilding, according to the company. The Point Breeze facility is working with limited capacity.
The intention is to “continue to run it and process for as long as we have the inventory and the liquidity,” said Jeffrey S. Stein, a financial adviser focused on distressed debt who has been named chief restructuring officer by Philadelphia Energy Solutions’ parent company, PES Holdings LLC..
Before the fire, the PES complex produced a little more than one-quarter of the fuel consumed on the East Coast and employed roughly 1,000 workers.
June’s “historic, large-scale, catastrophic” blaze caused the company to lose momentum after successfully emerging from Chapter 11 just last August, Stein told the judge. PES had filed for bankruptcy on Jan. 21, 2018, citing the rising costs of the Renewable Fuel Standard, a program that forces refiners that don’t blend ethanol into what they sell to buy credits on the open market.
With this reorganization, Stein said, the company intends to use the tools of Chapter 11 to get the refinery complex going and maximize the value of its assets.
PES secured $100 million in debtor-in-possession financing, with an additional $20 million available upon consent of the lenders, to fund the bankruptcy case and restructuring. As of now, PES has $45 million cash in deposit accounts, and according to court documents its total debt was estimated at $1.75 billion as of July 2019.
During Tuesday’s hearing, PES’s attorneys entered motions to keep the company operating with minimal disruption or adverse effect on its business. Judge Gross authorized the company to pay critical vendors for their services; pay wages, salaries and other compensation to refinery employees and continue their benefit programs; pay certain taxes and fees; pay future utility services; continue insurance payments; and continue to operate its cash management system and other transactions.
The judge also authorized PES to file a consolidated list of creditors and to extend until Sept. 6 the period to file schedules of assets and liabilities, current income and expenditures, executory contracts and unexpired leases.
An objection hearing was scheduled for Aug. 14, with a final hearing on Aug. 21.
Stein told the court that PES took immediate action after the fire to preserve liquidity, hiring Kirkland & Ellis LLP as its legal advisers, PJT Partners Inc. as its investment bankers, and Alvarez & Marsal North America LLC as its restructuring advisers. Among the strategies mentioned by Stein was reducing the refinery complex’s workforce of about 1,000 employees, about 600 of whom are members of the United Steelworkers.
On June 28, two workers filed a federal lawsuit, saying they were not given enough notice or severance paid as required by law. On July 3, the company extended pay for the majority of workers through Aug. 25. In testimony, Stein said the company informed 1,025 employees via written notices on June 26 in accordance with the Worker Adjustment and Retraining Notification Act.
PES also started to engage with its insurers to get an advance and a resolution of the losses caused by the fire, Stein said. PES could recoup losses up to $1.25 billion through property and business interruption insurance coverage, and Stein said the company has not yet obtained an advance.
“These insurance proceeds are the very heart of these Chapter 11 cases: The sooner the debtors can recover, the sooner the business can complete its recovery,” Stein told the judge.