The Carlyle Group will get a majority stake in Sunoco's Philadelphia refinery with the promise of capital investment. The new venture will be renamed Philadelphia Energy Solutions. The deal has plenty of sweeteners:
$25 million in Pennsylvania State grants
The Commonwealth will provide grants to help build a high-speed train
unloading facility at the refinery, support a major capital project and
upgrade the cracker at the refinery.
Tax exempt financing and other
tax saving moves
Officials said they are also moving to include parts of the refinery in
the Keystone Opportunity Zone so it can receive tax benefits for new
construction.
JP Morgan's
working capital assistance
J.P. Morgan Ventures Energy Corporation, will supply the refinery with
crude and non-crude feedstocks on a just-in-time basis and will purchase
refined products from the refinery for offtake.
Add
emission credits, which JP Morgan happens to buy and sell
State and federal environmental regulators have agreed to modify a 2005
consent decree to allow the Philadelphia refinery to receive some of the
emissions credits assigned to Sunoco's Marcus Hook refinery, which was
shut down in December. Those temporary credits should allow the
Philadelphia refinery to more quickly implement its expansion plans.
Union leaders
contributed to the deal
The union was to vote Monday night on a new three-year contract that gives Carlyle more flexibility on work rules and pensions.
The White House helped
kick off deal discussions:
White House officials also called Carlyle executives..., urging
them to talk to Sunoco...
The question is how much capital Carlyle will actually
put into this venture?
The Carlyle Group’s investment will flow directly to the refinery’s
balance sheet to fund future capital projects, facility upgrades and
enhance the refinery’s working capital.
Capital for this investment will come from the Carlyle Equity
Opportunity Fund and the Carlyle Energy Mezzanine Opportunities Fund.
JPMorgan Chase (NYSE: JPM) has agreed to provide working capital
financing for intermediate products owned by the refinery in the form of
an asset-backed loan, subject to documentation.
WSJ painted a different picture of Carlyle's capital:
Carlyle said it will fund improvements at the Philadelphia refinery with
money from a small buyout fund and another that invests in debt tied to
energy projects.
Carlyle owned a European refinery company, which it flipped after two years:
Carlyle and Riverstone Holdings LLC in 2005 acquired European refiner
Petroplus Holdings AG, reselling it about two years later for five times
their original investment, according to people familiar with that deal.
Carlyle's five bagger set the stage for Petroplus'
debt-fueled bankruptcy. Ironically Petroplus'
demise could help Carlyle's latest refinery venture.
Carlyle is betting it can improve margins partly by taking advantage of a
new twist in the energy landscape—the bounty of oil and natural gas
unleashed in the U.S. interior in recent years as producers learned to
crack open energy-rich shale formations.
Carlyle's wager is a "huge bet" on a continued price difference between
U.S.-traded crude-oil and imports from overseas linked to Europe's Brent
crude.
Carlyle is betting big on energy, but their equity stake is a fraction of the amount a PEU consortium put into TXU, before renaming it Energy Future Holdings. KKR & company's hand is
dependent on Texas politicians. How will Carlyle's
taxpayer supported bet turn out? It remains to be seen.
Update 8-21-12: Carlyle
dumped the pension for a 401k.
Update 12-22-12: WSJ ran
a piece on how politicians helped save jobs via the Carlyle deal. It mentioned the EPA waiving reviews and the $25 million in state assistance, but none of the other benefits to Carlyle.
