Limetree Bay Refining, LLC – Creditors’ Committee, Happy with Asset Sale and Unhappy with Outsized Control of Goldman-Led Prepetition Secured Creditors, Seeks Quick Dismissal of Chapter 11 Cases

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March 22, 2022 – Following up on their objection to the Debtors' request for a third set of exclusivity extensions [Docket No. 1199] which flagged their strong preference for a quick dismissal of the Debtors' cases, the Debtors' Official Committee of Unsecured Creditors’ (the “Committee”) has now actioned that sentiment with a motion to dismiss which argues that: “now is the time to dismiss these Chapter 11 Cases and distribute the net Sale proceeds, because of the Debtors’ substantial and continuing losses and inability to be rehabilitated and have no ongoing operations or Business Purpose and cannot be rehabilitated no remaining unencumbered assets of any value available for distribution to unsecured creditors and insufficient funds to support the administrative costs of pursuing anything but a prompt exit from bankruptcy” [Docket No. 1212].

In arguing that there is little left for the Debtors to accomplish after a "greater than anyone could have hoped…[and] highly successful auction process," the Committee urges the Court to compel the "figurehead" Debtors to distribute sale proceeds before they are other wasted in the further prosecution of dead-end cases. The Committee also takes particular umbrance with a Goldman Sachs led group of prepetition secured creditors who had otherwise sat silently "hoping that a going concern sale process would yield them a better recovery than the disastrous alternative of foreclosing on their collateral," while the Debtors Debtors struggled with DIP financing and sale efforts. Those senior creditors, the Committee continues, now effectively control these cases and "should now be considered Lenders in Possession."

A hearing on the motion is scheduled for April 5, 2022.

Case History

On July 12, 2021, Limetree Bay Services, LLC and five affiliated Debtors (“Limetree” or the “Debtors”) filed for Chapter 11 noting estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $500.0mn and $1.0bn and commenting as their need for bankruptcy shelter that their St Croix "Refinery project faced significant hurdles — from delays in construction resulting in substantial budget overruns to a global pandemic."

On January 25th, the Debtors notified the Court that their $62.0mn sale had closed as of January 21st [Docket No. 1112].

On March 18, 2022, the Debtors filed a Combined Plan of Liquidation and a Disclosure Statement (the “Combined Document”) [Docket No. 1204].

The Committee' Dismissal Motion

The dismissal motion explains, “The primary objectives of these Chapter 11 Cases, including the preservation and sale of the Debtors’ refinery assets on a going concern basis for the benefit of all of the Debtors’ constituents, have been accomplished despite steep odds at the outset of the Chapter 11 Cases. The Committee respectfully submits that it is now time to conclude these successful cases by distributing the sale proceeds, which were far greater than anyone could have hoped for as the result of a highly successful auction process, and dismiss the Chapter 11 Cases. There is nothing of any benefit to be gained by prolonging the Debtors’ stay in bankruptcy to pursue the Plan the Debtors just filed in close coordination with and likely at the direction of the Prepetition Secured Parties. As noted by the structure of the Plan, the Debtors are now nothing more than a figurehead, having ceded control to the Prepetition Secured Parties, who should now be considered Lenders in Possession. Confirming the Debtors’ and the Prepetition Secured Parties’ Plan will be expensive and time consuming and will, as described herein, advance the limited goal of eking out perhaps another fraction of a cent recovery for Goldman Sachs and the other Prepetition Secured Parties by launching preference actions against the trade community, and other unarticulated recoveries. The recoveries from the preference actions will be used to pay the administrative costs of the Liquidating Trust, the payment of the Revolver Adequate Protection Claims Amount (the reimbursement of the payment of Priority Claims and Liquidating Trust Funding), and then, potentially unsecured creditors and the enormous remaining claims of the Prepetition Secured Parties. The Committee is moving to dismiss these Chapter 11 Cases pursuant to sections 305(a) and 1112(b) of the Bankruptcy Code because this effort to cannibalize the local trade vendors who have unwaveringly supported the Debtors is wasteful, distasteful, and will put an ugly amp on these otherwise successful Chapter 11 Cases.

As the Bankruptcy Court has observed, the Chapter 11 Cases have been a remarkable success, particularly given that the Debtors began with a shuttered oil refinery and significant, urgent environmental problems to address. During the first six months of the Chapter 11 Cases, the Debtors obtained $25 million in new money DIP financing from a third-party lender, safely idled its St. Croix based refinery (the ‘Refinery’), marketed the Refinery and substantially all of their assets, and closed the Sale to the Purchaser for $62 million. The Committee has always been mindful of the big picture and was fully helpful and supportive in achieving this outcome in many ways, including suggesting a mediation process early on in these Chapter 11 Cases to address the Debtors’ efforts to remediate the impact of the Refinery’s environmental incidents on the St. Croix population. The Committee has continued to assist the Debtors even though the substantial cash proceeds of the Sale are subject to liens and were always going to be handed over to the Prepetition Secured Parties. The Committee is optimistic, however, that the Refinery will safely restart operations, which will benefit all constituencies as well as the island community on St. Croix.

From the outset of the Chapter 11 Cases, the Debtors’ trade vendors and other general unsecured creditors, including though the Committee, have whole heartedly and repeatedly supported the Debtors’ efforts to: (i) maintain value and safety of the Refinery and the Debtors’ assets by, inter alia, supporting the DIP financing (and focusing the Bankruptcy Court’s attention to the real structure of the DIP Facility); (ii) avoid significant personal injury asserted class action litigation pending at the time of the filing of the Petitions, including being instrumental in the creation of a mediation process; and (iii) most importantly, supporting the Debtors’ Sale and marketing process, and in particular the reopening of the Auction and the negotiations with potential buyers, with the absolute knowledge that the Sale of substantially all of the Debtors assets would not generate any recoveries to creditors, other than funded debt creditors like Goldman Sachs and the Ad Hoc Term Lender Group. Why would the Committee support such a sale process? For the simple reason that a reopened and restarted Refinery is in the best interests of a host of parties, including the Debtors’ employees, contractors, trade vendors, and the greater St. Croix community, to say nothing of the environmental and indirect economic benefits of transferring the Refinery to an entity which could operate the Refinery responsibly. It is worth noting that the Debtors also enjoyed the support of the trade vendors and service providers who became involuntary lenders upon the bankruptcy filing with little or no prospect of recovering anything, by continuing to provide necessary supplies and services to the Debtors.

None of Goldman Sachs or the other Prepetition Secured Parties sought to finance a sale process to save the Refinery. Rather, they were content to step aside, allow DIP financing to be provided by a third party and remain silent while hoping that a going concern sale process would yield them a better recovery than the disastrous alternative of foreclosing on their collateral under non-bankruptcy law and taking title to environmentally contaminated property. In this regard, the Prepetition Secured Parties – without any risk – have already benefitted immensely by avoiding a costly alternative in these Chapter 11 Cases, which were in many ways made possible by the proactive support of the trade community and the Committee.

Ignoring now the magnanimous efforts of the Committee and its constituents by proposing a Plan which targets those same well-intending parties in order to create the possibility of a miniscule additional recovery for the Prepetition Secured Parties is entirely inappropriate. Accordingly, now is the time to dismiss these Chapter 11 Cases and distribute the net Sale proceeds, because any further use of such amounts in a Plan process will be to pay for an unnecessary and expensive process which will be for the principal benefit of the Prepetition Secured Parties without commensurate benefit to other creditors. Further underscoring the need to dismiss these Chapter 11 Cases is that the Prepetition Secured Parties, unsatisfied with already reaping the primary benefits of these Chapter 11 Cases, are concurrently seeking to, effectively, reimburse themselves for the one-sided use of the Sale Proceeds through recoveries from general unsecured creditors.

These Chapter 11 Cases should be dismissed under section 305(a) and 1112(b) of the Bankruptcy Code on multiple grounds, including that the Debtors have incurred substantial losses post-petition and are incapable of being rehabilitated. Indeed, with the Refinery and its environmental considerations transferred to a responsible operator, it is in the best interest the Debtors estates and all of their creditors, and not just in the limited best interest of the Prepetition Secured Parties (as the Plan structure would be), to dismiss these Chapter 11 Cases.”

The hearing on the motion is scheduled for April 5, 2022.

Asset Sale

On December 21, 2021, further to an August 11th bidding procedures order [Docket No. 392] and an auction conducted on December 18th [Docket No. 948], the Court hearing the Limetree Bay Refining cases issued an order approving the $62.0mn sale of substantially all of the Debtors’ estates to a bidding group comprised of Jamaica-based West Indies Petroleum Limited and Port Hamilton Refining and Transportation (together, the “Purchaser”) [Docket No. 977]. The executed APA is attached to the order as Exhibit 1. On January 25th, the Debtors had notified the Court that the sale had closed as of January 21st [Docket No. 1112].

According to West Indies Petroleum Limited’s website, “West Indies Petroleum was incorporated in 2012 and commenced operations in 2013 as a special purpose vehicle to enter the ship bunkering business in the Caribbean and Latin American region. It was founded out of the need to meet the ever growing demand of the region’s marine refueling as well as the necessity to establish Jamaica as a global logistics hub.”

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Shapiro Declaration”), Mark Shapiro, a senior managing director for the Debtors' restructuring advisor B. Riley, detailed the events leading to Limetree’s Chapter 11 filing. The Shapiro Declaration provides: “…the Refinery project faced significant hurdles — from delays in construction resulting in substantial budget overruns to a global pandemic. Ultimately, the Debtors substantially completed the Refinery refurbishment in December 2020 — a year late and more than $1 billion over the initial budget — and, on February 1, 2021, the Refinery resumed operations and began producing certain refined products for commercial sale.

While the initial relaunch of the Refinery proved successful in many respects, the Refinery experienced intermittent operational issues and incidents of varying severity beginning shortly after the resumption of operations. In late April 2021, residents in the communities neighboring the Refinery began reporting a foul odor allegedly emanating from the Refinery, which prompted internal investigations as well as inquiries by the EPA and DPNR into the Refinery’s emissions of gaseous by-products of the refining processes. The Debtors cooperated with the EPA and DPNR in an effort to expeditiously identify the source of the odor and, moreover, ensure Refinery emissions comported with applicable standards. Although the investigation concluded that the odor was due, at least in part, to an exposed sewage access point on USVI government property, the investigation also uncovered irregularities in the emission of certain gases from the Refinery.

In conjunction with the EPA and DPNR, the Debtors began creating a plan to remedy the issues and ensure emissions complied with applicable standards. Before the Debtors were able to finalize and implement any remediation plan(s), on May 12, 2021, an incident occurred resulting in the release of small amount of oil from a flare located at the Refinery, which affected homes and property in the surrounding neighborhoods. The Debtors immediately began an incident response process and, on May 13, 2021, voluntarily suspended operations at the Refinery to permit a full and complete investigation of the incident and to address any contributing factors.

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