Andrew Maykuth reports for the Philadelphia Inquirer
A U.S. Bankruptcy Court judge on Wednesday tentatively approved the sale of the shuttered Philadelphia Energy Solutions refinery to a Chicago firm, closing the door on more than a century of oil refining in South Philadelphia and potentially radically altering the city’s landscape.
» UPDATE – Chicago’s Hilco is the new owner of Philadelphia refinery and 1,300 acres
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Judge Kevin Gross said he was satisfied that Hilco Redevelopment Partners’ $252 million bid — boosted by $12 million in a flurry of eleventh-hour negotiations on Wednesday — was the highest and best offer for the 1,300-acre site, occupied by the East Coast’s largest oil refinery until it abruptly closed June 21 after a devastating fire.
Gross also said the decision to sell to Hilco, which has told city officials it plans to demolish the refinery and replace it with a mixed-use industrial park, was “clearly in the best interests of the community,” citing the refinery’s “numerous and repeated problems.”
Having addressed most of the objections Wednesday, the judge said he would be prepared to sign an order Thursday affirming the refinery’s bankruptcy reorganization after lawyers representing various parties had a chance to review the document overnight.
There was some urgency to complete the deal by Thursday, a deadline set by the expiration of Hilco’s offer.
“After tomorrow, Hilco disappears, the plan disappears,” Gross told the packed courtroom in Wilmington. “What’s a judge supposed to do?” Gross scheduled a hearing for 1 p.m. Thursday, in case any parties raised new objections that he had not already ruled on.
With an expected final approval Thursday, Hilco would be in charge of developing Philadelphia’s largest available commercial real estate parcel. Environmental activists have long criticized the refinery as the city’s largest stationary source of air pollution. And, community activists want the site to be used for anything but a refinery after the catastrophic explosion in June served as a dramatic reminder of the risks posed by the fuel-refining complex.
» READ MORE: What to know about the Chicago firm remaking the South Philly refinery site
First, however, the site will need extensive environmental remediation after more than a century of oil refining there. But it’s not immediately clear when that will happen, and who will pay the bill.
On Wednesday, the Clean Air Council, a frequent legal adversary of the refinery, lauded its permanent closure.
“Hilco must work with all stakeholders to leverage this opportunity to transform the site so it protects our air, water, health, and safety while spurring economic development and high-paying union jobs,” Joseph Otis Minott, the council’s executive director, said in a statement.
Hilco’s experience in redeveloping industrial properties includes acquiring old power plant sites in Boston and New Jersey, and building warehouses on a former steel mill site in Baltimore.
Last-minute negotiations
The start of Wednesday’s hearing was delayed nearly six hours while a frantic round of closed-door negotiations took place, resulting in settlements on most of the objections raised in the last week by unsecured creditors, the United Steelworkers union, and other parties.
A rival development firm, Industrial Realty Group, made a late effort to boost its offer and to wrest the refinery away from Hilco, which was selected after a Jan. 17 auction. That apparently accounted for Hilco’s offer to boost its payment to $252 million, from $240 million agreed to earlier.
IRG had teamed up with former PES chief executive Philip Rinaldi, who wanted to restart the refinery. Rinaldi’s effort was supported by trade unions, including the United Steelworkers, which represented more than 600 of the refinery’s 1,100 workers.
Rinaldi said he was “very disappointed” with Wednesday’s outcome.
Ryan O’Callaghan, the president of Steelworkers Local 10-1 before he lost his job during mass layoffs that followed the refinery’s closure, sat glumly during Wednesday’s hearing. “It’s not good,” he said.
The Steelworkers international signed on to a revised agreement, however, after $5 million in severance was added as a payment to workers who lost their jobs. The new plan also includes guarantees from PES and Hilco that union workers would remain employed to maintain the refinery and to continue to remove remaining fuels, a process that is expected to take at least a year. Hilco also agreed to work with unions on future employment at the site.
PES and its secured lenders also agreed to set aside $20 million for unsecured trade creditors, who can opt in and immediately receive a small portion of their claims — about 10 to 12 cents on the dollar — in exchange for dropping future legal claims.
“This is far from a perfect outcome,” said Robert J. Stark, a lawyer representing the committee of unsecured creditors, which agreed to withdraw its objections to the plan. He said the result made the best of a “horrible” situation. “We did the best we could with what we had.”
Assuming that Gross approves the plan on Thursday, it could still face legal challenges, especially from ICBC Standard Bank PLC, which lent the refinery millions of dollars only days before the explosion to finance its purchases of petroleum. The bank is engaged in a bitter battle with other lenders over who has priority in $1.25 billion in insurance claims the refinery has filed, but which have not been paid. That separate litigation is expected to take a long time to settle.
The refinery complex shut down after the June fire and a series of explosions destroyed a key unit on the Girard Point side. Girard Point is the larger of two refineries on the site.
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