Creditors and lenders of Limetree Bay refinery agreed Wednesday to a sale hearing date of Oct. 19 with a budget and a $10 million draw that will allow the bankrupt business to stay afloat through Aug. 29.
Since Chapter 11 proceedings commenced in the Bankruptcy Court of the Southern District of Texas, Judge David Jones has cajoled attorneys representing hundreds of secured and unsecured creditors to subordinate their claims to the debtor in possession, Arena Investors LP, to give the refinery a chance to survive.
“There is no stalking horse yet, but I understand there will be some bidders on the island doing site tours in the next two weeks or so,” Limetree’s lead bankruptcy attorney Elizabeth Green said.
Whether a sale goes forward depends on whether the buyer will be required to modernize the plant, clean up the contamination past and present, and be held liable for any of the refinery’s debt, estimated at $1.8 billion.
“I am waiting for the EPA to tell me their position,” Judge Jones said. “Some of the things floating in my head are highly dependent on the views they express. We know EPA can express a wide range of views.”
A pendulum of environmental protection
The EPA’s ‘wide range of views’ about Limetree have swung from permissiveness under the Trump administration – allowing the rusting 1960s plant to restart without the overhaul that would ordinarily be required of a facility idled for eight years – to a renewed vigilance under a Biden administration committed to environmental justice.
In February the federal watchdog stood on the sidelines as the refinery commenced operations with only one functioning flare. Within days, a flaring incident rained oil on some 130 Crucian homes, followed by a series of toxic emissions that sickened residents within a seven-mile downwind area.
It was top administrator Michael Regan who pushed the regional office into action, sending an emergency response team to St. Croix, according to former Region 2 EPA administrator Judith Enck.
The pendulum swung in decades past as well when Hovensa owned the refinery and an oil leak was discovered in the 1980s; a leak that would eventually contaminate the island’s only aquifer with over a million barrels of oil.
“When an EPA official came to St. Croix in 2011 to address the severity of what had been uncovered, they were shouted off the stage by residents furious over decades of quiet neglect,” Bennington College Professor David Bond wrote in his history of refining on the island.
An estimated 99 percent of the oil has since been removed and continues to be remediated, according to an EPA report.
Today, in addition to Limetree’s debt, anyone in the chain of ownership is liable for the cleanup. Because the Virgin Islands government sued and won a settlement from Hovensa, and the EPA released that company, “We don’t have anyone to look behind us,” Green explained.
The EPA could relieve a prospective owner of this liability, however, a decision that would have to be made in negotiations with the USVI government.
If so, “There are other parties, like the Terminals and others that have been sued, that the USVI can recover from. There is a way to cobble together what needs to be done, but it will not be easy,” Green said.
Rebuild or rehab?
Refineries shuttered for more than two years have been required to modernize. The Trump administration gave Limetree a pass on that. Jones’s other big question mark is, what will the Biden EPA do?
Before it sought Chapter 11 protection, Hovensa signed a consent decree promising a $700 million update. Limetree invested $4 billion in the operation, according to Chief Restructuring Officer Mark Shapiro; about $1.3 billion of that in hard equipment expenditures.
“I think everybody should want to hear what the EPA wants to say,” Jones said. “I’ll set a special hearing and allow the director of the EPA to have the podium and educate us all about the important issues and why the EPA thinks what it does.”
“Let’s go save a refinery”
With over 100 stakeholders in Wednesday’s Zoom hearing, Robert Feinstein, whose firm leads the committee representing Limetree’s unsecured creditors, summarized for the judge how far the parties had come in one week.
On Monday, to the judge’s surprise, Limetree’s DIP lender retreated from its original $25 million funding commitment to $15 million. But 48 hours later, with a push from Jones, the full $25 million had been restored, Feinstein said.
Where some of the lenders had balked at letting the DIP lender assume priority status, they have come to an almost full agreement.
And while lenders in such cases usually get cash for their professional fees, Limetree’s lenders agreed to accrue their fees.
“We took a little curve,” Jones said, “but hopefully we’re back on the straight and narrow, using our collective skills and resources to figure out a solution to what is a very knotty problem.
“Now,” he said, adjourning, “let’s go save a refinery.”