Private equity bet on troubled Caribbean refinery blows up on retirement funds
03/06/2021 12:00
By Laura Sanicola and Tim McLaughlin
NEW YORK, June 3 (Reuters) - U.S. private equity firm
Arclight Capital Partners LLC, which invests the retirement
savings of Maine teachers, NFL football players and Mayo Clinic
doctors, lost hundreds of millions of dollars betting on a
troubled Caribbean oil refinery, according to sources and
documents reviewed by Reuters.
Boston-based Arclight’s Energy Partners Fund VI, which held
a majority stake in the Limetree Bay refinery on St. Croix in
the U.S. Virgin Islands, shed more than a quarter of its value
in the year ended March 31, according to financial disclosures
by a limited partner in the fund.
The fund has since removed the refinery from its portfolio,
while investors holding hundreds of millions of dollars of
common and preferred equity in the facility have been forced to
write it off as worthless, according to pension fund officials
and financial disclosures.
Arclight declined to comment on the performance of the
investment. Arclight had been winding down its ownership in the
refinery since last year and sold its remaining stake in April,
a source familiar with the matter said.
Arclight added the refinery to its Energy Partners Fund VI
portfolio after purchasing it out of bankruptcy in 2016 for $190
million, hoping to renovate and restart it, along with other
investors. But the refinery, mothballed since 2012, never ran
smoothly.
Last month, the U.S. Environmental Protection Agency ordered
the plant shut for at least 60 days after the refinery sprayed
nearby neighborhoods with a petroleum mist.
The ownership company Arclight formed to oversee the
refinery, Limetree Bay Ventures LLC, is now being dissolved,
according to pension fund executives and documents viewed by
Reuters. Contractors hired to help restart the refinery also
claim they are still owed millions of dollars for their work,
according to liens filed with the U.S. Virgin Islands Recorder
of Deeds.
Linda Woods, 69, a retired English teacher in Maine, said
she never liked the idea of her retirement dollars funding
investments in fossil fuels.
But she said she hopes the problems at Limetree Bay will
encourage the state legislature to limit oil and gas investments
by the pension plan in the future. “This could be a watershed
moment,” Woods said.
Earlier this year, New York City pension funds voted to
divest their portfolios of some $4 billion worth of fossil fuel
investments while other plans face pressure to take similar
steps.
RETIREMENT SAVINGS HIT
Arclight closed a $5.6 billion capital campaign for the
Energy Partners Fund VI in 2015, winning commitments from
several pensions for investments in the private energy
infrastructure sector that were not named at the time.
Top commitments included $200 million from the State
Teachers Retirement System of Ohio; $150 million from the Maine
Public Employee Retirement System and $100 million from the
Lancashire County Pension Fund in England.
Smaller investors included a pension fund run for Mayo
Clinic employees and the Bert Bell/Pete Rozelle NFL Player
Retirement Plan, financial disclosures show.
Ultimately, the fund ended up with investments that included
Limetree Bay, as well as a major coal plant in Ohio and gas
pipelines.
Heavy losses hit the fund last year when the Limetree
refinery encountered operational problems. Other assets were
also hit by slumping energy demand from the pandemic.
In the first quarter of 2020, the overall Arclight VI
portfolio tumbled by $1.2 billion. That included a $246 million,
or 93%, drop in Limetree Bay’s value, according to disclosures
by the state of Connecticut retirement system, which invested
$85 million in the fund.
The overall fund declined 26% during the 12-month period
that ended March 31, according to financial disclosures by the
Sacramento County Employees’ Retirement System, which invested
$40 million.
The Lancashire fund, meanwhile, said investments in a fossil
fuel-focused fund might not pass muster today: "Our investment
strategy has evolved since this investment was made, and it
would be less likely to meet our current criteria for
responsible investment practices.”
Sandy Matheson, executive director of the Maine pension
plan, described the developments at Limetree Bay as a “terrible
situation.”
The Mayo clinic and the NFL pension plan declined to
comment.
Debt holders have also taken a beating. After buying the
plant, the Arclight-led ownership recapitalized the facility in
2018 with $1.2 billion in preferred equity and leveraged loan
financing.
FS Energy & Power Fund, a business development company
managed by EIG Global Energy Partners and FS Investments,
disclosed in an investor presentation last month that interest
payments on the refinery's debt have not been made in more than
90 days. The fund's refinery-backed debt was valued at $151
million after markdowns of more than 50% from the original
principal.
Common and preferred equity stakes in the refinery project,
meanwhile, no longer hold any value, according to U.S.
regulatory filings by the fund.
EIG declined to comment.
(Editing by David Gregorio)
((tim.mclaughlin@thomsonreuters.com; +1 617-856-4409; Reuters
Messaging: Tim.McLaughlin.thomsonreuters.com@reuters.net))