Sunday, January 21, 2018

PES Sinks Under Debt Funded Dividends to PEU Parent Carlyle Group

Reuters reported:

Philadelphia Energy Solutions LLC, the owner of the largest U.S. East Coast oil refining complex, announced to its employees on Sunday that it plans to file for Chapter 11 bankruptcy.
PES is owned by The Carlyle Group and Energy Transfer Partners-Sunoco Logistics.

Carlyle put up $175 million in 2012 in exchange for two-thirds of the new company and full responsibility for day-to-day operations.
Carlyle mined debt funded cash from PES and did so more than once:

About $121 million of the loan proceeds were paid as distributions to Carlyle and to ETP. The loan also funded a $25 million payment to preferred unit holders at Carlyle.

Expecting a boost in cash from an IPO, Carlyle, ETP and other smaller investors took out an additional $260 million in payouts in 2015, regulatory filings show.
Moody's downgraded the company's debt in November 2017, saying:

The downgrade of Philadelphia Energy Solutions R&M's ratings reflects the very high risk of default on PESRM's term loan that matures in April 2018.
 Reuter's reported Moody's warning in April 2016.

Moody’s Investors Service warned  that “additional aggressive distributions” to Carlyle and ETP posed a risk to the company’s B1 credit rating
Somehow Carlyle retained a stake in PES despite operating it into bankruptcy.

Following an agreement with its creditors, the company has secured access to $260 million in new financing, and said it expected the bankruptcy filing to have no immediate impact on its employees.

The $260 million in financing secured by the company involves $120 million in debtor-in-possession and exit financing, $75 million in additional capital from Sunoco Logistics, and a $65 million equity investment from the company’s shareholders, led by Carlyle along with the refiner’s management. 
The Carlyle Group made money off PES.  It made an initial equity investment of $175 million.   Carlyle received $105.5 million in 2013 plus $173.2 million in 2015.  That's $278.7 million cash, well above the private equity underwriters' initial investment.

Carlyle was up over $100 million when PES' operator declared the company bankrupt.  The timing is good for an enterprising reporter to ask Carlyle co-founder David Rubenstein about this development.  Davos happens this week where Mr. Rubenstein will present twice.

Rubenstein will also meet with India's Prime Minister Modi.  It's unlikely he will mention PES's or ManorCare's bankruptcies under Carlyle ownership.

Update 1-24-18:  Fresh off the implosion of affiliate PES Carlyle Group co-founder David Rubenstein warned against too much debt (leverage) and geopolitical surprises.

Update 2-21-18:  Reuters noticed Carlyle's mining of PES cash over the years, i.e. what PEUReported.  Reuters stated "The Carlyle-led consortium collected at least $594 million in cash distributions from PES before it collapsed."

Update 3-19-18:  SeekingAlpha added its take on PES bankruptcy under Carlyle.

Update 5-30-18:  Carlyle yanked its Varo Energy IPO in April.  Investors might've remembered what Carlyle did to PES.  Interest was sorely lacking according to FT.