Refiner goes belly-up after big payouts to Carlyle Group


Feb. 20, 2017

By Jarrett Renshaw

Throughout 2016 and 2017, a rail terminal built to accept crude oil for the largest East Coast refinery often sat idle, with few trains showing up to unload.

Although little oil flowed, plenty of money did.

Under a deal Philadelphia Energy Solutions (PES) signed in 2015, the refiner paid minimum quarterly payments of $30 million to terminal owner North Yard Logistics LP – even if little crude arrived. Much of that cash, in turn, flowed to the investors that own both PES and North Yard, led by the Carlyle Group, a global private equity firm with $178 billion in assets.

The deal in effect guaranteed lucrative payouts to Carlyle regardless of whether the refinery benefitted from the arrangement. When oil market conditions made the rail shipments unprofitable later that year, the refinery took heavy losses while its investors continued to collect large distributions for two more years.

The rail contract exemplifies the financial demands Carlyle imposed on PES in the years leading up to the refiner’s bankruptcy in January. The Carlyle-led consortium collected at least $594 million in cash distributions from PES before it collapsed, according to a Reuters review of bankruptcy filings. Carlyle paid $175 million in 2012 for its two-thirds stake in the refiner.

(For a graphic detailing how PES went bankrupt, see: )

More than half the distributions to the Carlyle-led investors were financed by loans against PES assets that the refiner now can’t pay back, the filings show. The rest came from the refiner’s operating budget and payments PES made under the terminal deal to North Yard, a firm with no offices or employees that PES spun off in 2015.

PES has blamed its bankruptcy on environmental regulations that require all U.S. refiners to cover the costs of blending corn-based ethanol into the nation’s gasoline. But the ill-fated train terminal deal and other large payouts to investors played key roles in the refiner’s collapse, according to filings and five current or former PES employees who were involved in the refinery’s decision-making. The employees spoke to Reuters on condition of anonymity.

The investor payouts, along with a slump in refining economics, left PES unable to cover its obligations under the decade-old U.S. Renewable Fuel Standard or the loans it took to finance the distributions to Carlyle, the filings show.

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