Exclusive: Philadelphia oil refinery taps debt restructuring adviser - sources

(Reuters) - Philadelphia Energy Solutions LLC, the owner of the largest U.S. East Coast oil refining complex, has hired an investment bank to help tackle its debt burden, as it struggles with low profit margins, people familiar with the matter said on Tuesday.

FILE PHOTO - The Philadelphia Energy Solutions oil refinery owned by The Carlyle Group is seen at sunset in Philadelphia, Pennsylvania, U.S. March 26, 2014. REUTERS/David M. Parrott/File Photo

The move underscores the challenges facing some East Coast refineries, which used to enjoy a competitive advantage when oil prices were high because they were able to secure supplies cheaply by rail. The crash in oil prices has changed that.

Philadelphia Energy Solutions’ latest woes come five years after private equity firm Carlyle Group LP and Energy Transfer Partners LP’s Sunoco Inc rescued the refinery owner from bankruptcy, in a deal supported by tax breaks and grants that saved thousands of jobs.

The refinery complex is still one of the region’s largest employers, and U.S. energy officials have warned that its closure could lead to price spikes at the pump and even threaten the national security interests.

Philadelphia Energy Solutions has tapped investment bank PJT Partners Inc for advice on dealing with its near-term debt maturities, including a $550 million loan that comes due in 2018, said the sources, who spoke on condition of anonymity because the hiring has not been made public. The company also has a revolving credit line that comes due in 2019.

“Philadelphia Energy Solutions is currently assessing its capital structure with the goal of improving financial flexibility in light of current market and regulatory challenges that have affected the company’s profitability,” the company said in a statement to Reuters.

“We are working constructively with our lenders to find a solution that will enable us to move forward with the right financial foundation to support our business into the future. While these discussions are ongoing, operations are unaffected and it remains business as usual,” the statement added.

The company did not comment on the hiring of an outside adviser and PJT Partners and Carlyle declined to comment. Sunoco, meanwhile, did not immediately respond to a request for comment.

Philadelphia Energy Solutions owns two refineries, Girard Point and Point Breeze. It can convert approximately 335,000 barrels of crude oil per day to products such as gasoline, jet fuel and diesel, and it employs about 1,100 people.

East Coast refiners have lower profit margins than their peers in other parts of the United States, largely because of their current reliance on crude imports from West Africa and other markets. In addition, many of them have been struggling with costs imposed by environmental regulations, which force them to spend money on renewable energy credits.

Philadelphia Energy Solutions turned strong profits in 2014 and 2015, thanks to investments in rail terminals that allowed the refiner to bring in discounted Bakken crude oil in mile-long trains from North Dakota.

But the boom turned to bust by the end of 2015, as oil prices plummeted and the discount for North Dakota crude disappeared. The fallout hit oil and gas explorers and producers hard, with scores of them such as Linn Energy Inc and Breitburn Energy Partners LP filing for bankruptcy last year.

Carlyle, which invested $175 million in 2012 in exchange for two-thirds of Philadelphia Energy Solutions, withdrew its plans to take the company public last year at an expected valuation of $1.3 billion. Carlyle also tried to sell Philadelphia Energy Solutions last year.

Philadelphia Energy Solutions has also been grappling with its labor union, which threatened to strike earlier this summer unless cuts to benefits were restored.


Earlier this year, a New Jersey-based asphalt refinery, the largest in the United States, closed down, joining four other East Coast refineries that shut their doors in the past decade.

Before Carlyle took over the complex, Philadelphia Energy Solutions was a “zombie” refiner at risk of being shuttered in the wake of the financial crisis, when demand for oil evaporated.

In bringing in Carlyle as a majority investor in 2012, Sunoco agreed to contribute to the refinery’s assets and be a non-controlling partner.

The refinery owners enjoyed a taxpayer-funded rescue package, which included the creation of a tax-friendly zone, $25 million in grants and environmental liability waivers.

The company took on the $550 million loan that comes due early next year in 2013 to finish capital projects and pay out dividends to Carlyle and Sunoco.

The payouts and tax advances reached $480.9 million between 2013 and 2015, according to filings.

A spokesman for Philadelphia Mayor Jim Kenney, who was a councilman when the initial deal was struck, told Reuters last year that public support was justified in light of the payouts “because it meant that the refinery remained opened and nearly 1,000 jobs stayed in Philadelphia.”

Reporting by Jessica DiNapoli; Additional reporting by Jarrett Renshaw in New York; Editing by Matthew Lewis and Tom Brown