Federal Judge’s Gag Order Delayed News Of HOVENSA Deal By One Day
WILMINGTON, Del. – A federal bankruptcy judge sitting in Delaware made a ruling on the controversial sale of oil company HOVENSA on Monday, but said details of a large portion of the sale hearing could not be made public, under penalty of contempt, until the Gov. Kenneth Mapp announced them on Tuesday.
During a hearing in Wilmington on the proposed sale of HOVENSA’s St. Croix oil refinery assets to the stalking horse bidder, an affiliate of ArcLight Capital Partners LLC, U.S. Bankruptcy Judge Mary Walrath said that the information uttered during the testimony of Christiansted attorney Joel Holt, co-counsel for the government of the Virgin Islands, and the oral argument afterward was off limits.
The judge “cautioned” members of the media and public who were hearing it not to disseminate the information until it was announced at a news conference by Mapp at Government House in St. Thomas.
When Judge Walrath, who did not seal the courtroom, was asked what the consequences would be if the information were to be released, she answered that whoever did so would be “considered in contempt of court.”
Still, news of the deal leaked out overnight and press reports were available on the internet just after midnight. The Virgin Islands Free Press published who the governor had chosen as the winning bidder two hours before Mapp’s press conference; but, in accordance with the judge’s order, did not release full details until the announcement was underway in St. Thomas.
Still, declarations from the witnesses who testified at the sale hearing for HOVENSA — owned by subsidiaries of Hess Corp. and Petroleos de Venezuela, S.A. — that are entered into the public court record list many details of the proposed transaction, as well as a competing offer from strategic suitor Buckeye Partners LP, which had objected to the sale on the grounds that its bid should have been considered the top offer at the auction.
According to a declaration dated Nov. 28 from Timothy Pohl, a managing director of the debtor’s financial adviser, Lazard Freres & Co. LLC, the bid HOVENSA chose as its best offer was one from ArcLight affiliate Limetree Bay Holdings LLC at $210 million, with $100 million of that going to the Virgin Islands government “essentially as a fee.”
The Limetree Bay Holdings bid also included paying for at least $15 million in power supply for the debtor provided free of charge and a deal with the governor on a “concession agreement” to be taken to the territory’s legislature with certain terms “unknown to the debtor.”
Buckeye’s offer came in at $365 million, assumption of the debtor’s pension liability, and other covered costs, but no deal with the government on a concession agreement, the declaration states.
Pohl’s declaration said that a HOVENSA sale can’t be closed without significant support from the Virgin Islands government, contending that a buyer likely wouldn’t be willing to consummate the transaction without tax concessions or the operating permits and authorizations in hand.
After several meetings the debtor held with officials, “the governor’s representatives took the position that the governor would not take any proposed concession agreement to the Virgin Islands Legislature for approval absent an amount of the prospective sale proceeds being paid directly to the [government],” the declaration states.
The Virgin Islands government and HOVENSA have been at legal loggerheads for some time, with Mapp announcing a roughly $1.5 billion lawsuit hours before the company filed for Chapter 11 over the decision to close the refinery, which was promised to run until 2022, according to court records.
Hess has been operating on St. Croix for roughly half a century and was responsible for a major portion of the territory’s economy.
In August, the Virgin Islands Bureau of Internal Revenue (BIR) argued that Hess’ partner for the HOVENSA refinery, Venezuela’s state-owned Petroleos de Venezuela,S.A. (PDVSA) should pay nearly $3.8 billion in taxes and penalties.
Meanwhile, Hess had been pursuing an $84 million tax refund suit against the territory, but the case was tossed by U.S. District Judge J. Paul Oetken in July, on the grounds the Virgin Islands do not qualify as being a part of the United States in light of its “unique” tax structure.
HOVENSA filed for bankruptcy protection in September, citing poor economic conditions and “intense competition.”
The company idled most of its refinery operations after suffering approximately $1.3 billion in losses between 2009 and 2011, according to a first-day declaration from Chief Restructuring Officer Thomas Hill.