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Law360 (June 18, 2020, 4:07 PM EDT) -- The owners of a broken and bankrupt Philadelphia refinery reported a deal Wednesday to trim its already confirmed $252 million Delaware Chapter 11 sale in a settlement partly driven by buyer warnings of a deal breach and doubts over finding an alternative during a pandemic.
PES Holdings LLC said in a motion filed with U.S. Bankruptcy Judge Laurie Selber Silverstein's court that it had lowered the price for its sale to an affiliate of Hilco Redevelopment Partners, HRP Philadelphia Holdings LLC, by $27.5 million, to $224.5 million, while building in financial incentives to assure a closing by June 26.
HRP notified PES prior to a May 31 deadline for termination of the deal by either party that a required soil management plan had not been received from Pennsylvania's environmental agency. While agreeing to continue working toward closing, the buyer on June 6 sought a price reduction, citing "difficulties created by the COVID-19 pandemic, increased environmental costs and other issues.
The concessions offered by both sides in the days that followed, PES said, are preferable to litigation to enforce sale terms for the explosion-damaged, former oil-refining complex that once handled 330,000 barrels per day.
"Entry into the amendment was not a close call for the debtors, and its approval should not either be for this court," PES said, adding separately, "Any action by the debtors to enforce their remedies under the original agreement would likely result in value-destructive litigation. While the debtors believe that they would prevail in retaining the escrow, litigation is never without risks."
Under the agreement, Hilco agreed to a firm June 26 closing date, with a price increase of $357,143 for each calendar day, or $2.5 million per week, starting June 1.
PES meanwhile agreed to transfer to the buyer potentially valuable emission-reduction credits that would have gone to a Chapter 11 liquidation prior to the revised sale agreement. HRP, in turn, agreed to forfeit $15 million of its $30 million escrow payment if the June 26 deal closing deadline is missed.
"Put simply, the amendment provides the greatest combination of value and security for the debtors' stakeholders. All of the debtors' other options present significant risks and likely lengthy delays, and provide uncertain benefits," the motion said.
Among other concerns was the prospect of battling a buyer entity created by Hilco as a vehicle for the sale, without any assets of its own, PES said.
"Veil-piercing litigation against Hilco, a well-capitalized opponent, would be lengthy, massively expensive, and would have (at best) a highly uncertain outcome," the motion said.
Neither PES nor Hilco immediately responded to requests for comment.
PES' 1,300-acre refinery had been in operation under various owners since the 1860s until a massive explosion forced a shutdown in June 2019, little more than a year after confirmation of an earlier Chapter 11 plan.
The company exited the previous Chapter 11 under a reorganization and $700 million debt restructuring, but was shut down permanently after the June 21, 2019, fire, which spread from a unit that produces octane additives to adjacent fuel storage facilities. Its current plan, with the sale to Hilco's interests for clearing and redevelopment into a mixed-industrial site, was confirmed in February.
PES requested a shortening of ordinary notice periods and scheduling of a hearing on the amendments to the sale as soon as possible.
PES is represented by Laura Davis Jones, James E. O'Neill and Peter J. Keane of Pachulski Stang Ziehl & Jones LLP and Edward O. Sassower, Steven N. Serajeddini and Matthew C. Fagen of Kirkland & Ellis LLP.
Hilco affiliate HRP Philadelphia Holdings LLC is represented by Douglas D. Herrmann and Marcy J. McLaughlin Smith of Pepper Hamilton LLP and Brian C. Walsh and Eric S. Prezant of Bryan Cave Leighton Paisner LLP.
The case is In re: PES Holdings LLC et al., case number 1:19-bk-11626, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Orlando Lorenzo.
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