Good afternoon,
It was a bad day for neighboring Philadelphia.
Upwards of 3,500 jobs will be lost with the closing of the Hahnemann Hospital and the Philadelphia Energy Solutions refinery.
Both the refinery and the hospital have been on life support for a while.
There is one common element, the use of private equity funding that rolls the dice on riskier deals.
The end game is taking the company public. Often, it’s a high wire act that involves finding the right management and managing heavy debt. The risks can be fairly minimal for private equity partners, thanks to bankruptcy filings and other tools that limit exposure.
Private equity behemoth Carlyle Group partnered with the successor company of former owner Sunoco in saving the South Philadelphia refinery that had been slated for closing.
Unfortunately, debt generated by the deal and the ups and downs of the refining business proved to be too much. Last week’s blast and a stubborn fire was the last straw
The refinery had emerged from Chapter 11 last year, but Carlyle was in no mood to bankroll expensive upgrades and signs of financial stress were apparent.
When it came to Hahnemann, the private equity-backed owner that bought the hospital a year and a half ago envisioned a quick turnaround.
It turned out that the new guy was quick to throw in the towel after layoffs and management turmoil. Drexel University, which has a residency program at the hospital has filed suit.
The massive Philadelphia health care industry will adjust, with competing for hospital systems already making plans to take up the slack.
While gas prices could rise a bit, the oil business will also adjust to the loss of the East Coast’s largest refinery complex.
Laid off staff will have a good shot at finding jobs in a tight labor market, although some people will exhaust savings while making tough commutes.
Private equity can work. In the case of the Delaware City refinery, Blackstone’s investment paid off handsomely as well-managed PBF Energy went public and snapped up refineries at reasonable prices.
The outcome is different in Philadelphia.
Carlyle will take a bath with the refinery but did well when it snapped up former DuPont coatings business Axalta that in retrospect appears to be a bargain price. Philadelphia Energy Solutions is only a blip on Carlyle’s $200 billion in assets.
Delaware can be thankful that its health care sector and its lone refinery are in far better financial shape.
Enjoy your Thursday. Delaware Business Now’s newsletter will not be posted on July 4 and 5 and will return on July 8.
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