Narrative
Full Description
Project narrative
On August 7, 2018, PES Holdings, LLC and a group of lenders signed a $698,639,651 term loan facility agreement, which financed the exit of eight borrowers — PES Holdings, LLC; North Yard GP, LLC; North Yard Logistics, L.P.; PES Administrative Services, LLC ; PES Energy Inc.; PES Intermediate, LLC; PES Ultimate Holdings, LLC; and Philadelphia Energy Solutions Refining and Marketing LLC — from the prior Chapter 11 cases and was approved pursuant to a court order confirming a prior Chapter 11 plan. The term loan facility was comprised of four different tranches: Tranche A ($120.0 million due 12/3/2022), Tranche A-2 ($59,738,319 due 2/11/2022), Tranche B ($77,500,000 due 12/31/2022), Tranche C ($441,401,332 due 12/31/2022). On the same day, in conjunction with the term loan facility agreement, five borrowers -- PES Holdings, LLC; Philadelphia Energy Solutions Refining and Marketing LLC; PES Administrative Services, LLC; North Yard GP, LLC; and North Yard Logistics, L.P -- executed a pledge and security agreement with Cortland Capital Market Services, LLC. Additionally, on August 7, 2018, an intercreditor agreement was signed by three creditors — Merrill Lynch Commodities, Inc. (“MLC”), ICBC Standard Bank PLC (ICBCS), and Cortland Capital Market Services LLC (the Term Loan Agent) — and five borrowers (PES Holdings, LLC; Philadelphia Energy Solutions Refining and Marketing LLC; PES Administrative Services, LLC; North Yard GP, LLC; and North Yard Logistics, L.P). The intercreditor agreement governs the respective rights and priorities of the term loan lenders and ICBCS with respect to the pledged collateral, including business interruption insurance proceeds. It also governs two primary categories of collateral—SOA Separate Assets and Collateral (which is collateral of ICBCS only), and Common Collateral (which is collateral that secures the obligations owed to ICBCS and the Term Loan Lenders). Essentially, this agreement provided insurance for the assets of PES Holding. This agreement indicates that Cortland and ICBC as loss payees. Then, on June 18, 2019, Philadelphia Energy Solutions Refining and Marketing, LLC (PESRM) and ICBC Standard Bank (ICBCS) signed an intermediation facility agreement that provided, among other things, the working capital necessary for five borrowers -- PES Holdings, LLC; Philadelphia Energy Solutions Refining and Marketing LLC; PES Administrative Services, LLC; North Yard GP, LLC; and North Yard Logistics, L.P -- to operate the Girard Point oil refining facility in Philadelphia. The intermediation facility agreement required the borrowers to maintain business interruption insurance naming ICBCS as an additional insured, loss payee and mortgagee in a minimum amount of $750 million. Essentially, this agreement allowed ICBCS to supply almost all crude oil and feedstocks to the PES refinery and get product sales in return. This facility served as a working capital facility that helps PESRM to run their business. A large-scale, catastrophic incident involving an explosion at the alkylation unit at the Girard Point oil refining facility in Philadelphia — owned and operated by Philadelphia Energy Solutions Refining and Marketing, LLC (PESRM) — took place on June 21, 2019. Following the incident, PES Holdings, LLC; North Yard GP, LLC; North Yard Logistics, L.P.; PES Administrative Services, LLC ; PES Energy Inc.; PES Intermediate, LLC; PES Ultimate Holdings, LLC; and Philadelphia Energy Solutions Refining and Marketing LLC announced that they would would cease operating the Girard Point oil refining facility (after the run-off through the Point Breeze oil refining facility of the limited inventory of crude oil on hand. A complex dispute over the apportionment of business interruption insurance proceeds and property damage insurance proceeds followed the catastrophic explosion on June 21, 2019. The battle for the proceeds is between and among eight borrowers — PES Holdings, LLC; North Yard GP, LLC; North Yard Logistics, L.P.; PES Administrative Services, LLC ; PES Energy Inc.; PES Intermediate, LLC; PES Ultimate Holdings, LLC; and Philadelphia Energy Solutions Refining and Marketing LLC — and their lender, Cortland Capital Market Services, LLC, who are plaintiffs and counterclaim defendants, (2) ICBC Standard Bank, PLC, which, pursuant to an intermediation facility provided supplies and purchased refined product (oil and gas) from the borrowers and is a defendant, counterclaim plaintiff, and cross-claim defendant, and (3) the Official Committee of Unsecured Creditors, which is an intervenor defendant and counterclaim and cross-claim plaintiff. On August 7, 2019, the eight borrowers and Cortland Capital Market Services, LLC (collectively, the “Plaintiffs”) filed a complaint against the defendant — ICBC Standard Bank PLC (ICBCS)— regarding entitlement to insurance proceeds. ICBCS subsequently counterclaimed against the plaintiffs and cross claimed against the Official Committee of Unsecured Creditors and the Official Committee of Unsecured Creditors intervened, cross-claimed, and counterclaimed. On February 28, 2020, United States Bankruptcy Judge Kevin Gross issued a judgement: as the intercreditor agreemebt clearly stated, ICBCS was given priority to claim the business interruption insurance money. Cortland Capital (which represents the term loan lenders) won most of the property damage insurance money as they had the first right over money related to repairs for real estate, equipment and fixtures. The judge denied ICBCS’ claim over property damage insurance money because it only had priority over damaged inventory (i.e. oil and fuel that was destroyed by the event), not the refinery buildings. The Unsecured Creditors Committee’s request for the insurance money was completely denied as they did not have the priority rights. Cortland Capital appealed the decision against ICBCS in the U.S. District Court in Delaware. U.S. District Judge Richard G. Andrews affirmed the previous judgement, denying Cortland Capital’s motion.
Staff comments
1. PESRM’s principal asset is a refining complex located on an approximately 1,300 acre industrial site 2.5 miles from downtown Philadelphia. The refining complex includes two interconnected refineries: Girard Point and Point Breeze. The Refining Complex produces a full range of transportation fuels, such as gasoline and ultra-low sulfur diesel, as well as other refined products, including home heating oil, jet fuel, kerosene, residual fuel oil, propane, refinery grade propylene, butane, cumene, and sulfur. These products are marketed and distributed by truck, rail, pipeline, and waterborne vessels throughout the northeastern United States, and by waterborne vessels to international markets. When fully operational, the refining complex has a distillation and refining capacity of approximately 335,000 barrels of crude oil per day. 2. On June 18, 2018, ICBCS (as SOA collateral agent) signed a pledge and security agreement with Philadelphia Energy Solutions Refining and Marketing LLC; PES Administrative Services, LLC; PES Holdings, LLC; North Yard GP, LLC; and North Yard Logistics, L.P. The agreement granted ICBCS a lien in substantially all of their assets (the “SOA Collateral”), including all Accounts and all Inventory (including all raw materials, work in process and finished goods), all Renewable Identification Numbers, all Money and Deposit Accounts, all Letters of Credit, all Equipment, all Futures, all Trademarks, all Equity Interests in subsidiaries, General Intangibles, Commercial Tort Claims, and all Proceeds. 3. Common Collateral refers to fixtures, equipment, and real estate (mortgages). 4. For more detail regarding the case, see https://casedocs.omniagentsolutions.com/cmsvol2/pub_47347/757137_160.pdf. 5. It is unclear how much was committed under the intermediation facility by ICBCS because the agreement was sealed. However, as of July 8, 2019, the amount outstanding was $950 million USD. Hence, AidData assumes $950 million as the amount outstanding. 6. This crude oil intermediation facility underperformed vis-a-vis the original expectations of the lender and borrowers. On July 19, 2019, ICBCS delivered to the Debtors a notice of event of default under the Intermediation Facility.