Back on December 30 [14], we noted that a little known name in the US, but very well known in Europe, PetroPlus [15] is having significant solvency issues as banks froze a $1 billion revolver. Less than a month later the situation has proceeded to the next evolutionary step, as Europe's largest refiner by capacity has announced it will file for bankruptcy protection. And while operations should not be impacted, the fact that this comes just as Europe imposes an oil embargo on Iran, virtually guarantees that the continent's gasoline prices, already among the highest in the world are likely to set off even higher, paradoxically even as end-market demand is at lows. The bankruptcy will also guarantee that European initial jobless claims will plunge, especially if the BLS opens a Brussels office and applies its own very unique brand of "logic" to Europe.
From the WSJ [16]:
Swiss-based refiner Petroplus Tuesday announced plans to file for insolvency after talks with its lenders to unblock credit lines failed.
Petroplus, which employs 2,500 and owns five refineries in Europe, said it was working to "safely shut down" operations as it prepares the necessary bankruptcy papers in Switzerland "as soon as possible." The company had already shuttered three of the five plants earlier this month, while keeping open refineries in Germany and the United Kingdom at reduced rates.
Petroplus shares were recently down 84% to 0.23 Swiss Francs. Trading was temporarily halted earlier Tuesday after shares dropped 88% soon after the open.
The company's demise comes as European refiners struggle with overcapacity, weak demand and an increasingly tight credit market. Petroplus engaged political leaders in many of its markets in its efforts to persuade financiers to keep credit lines open, but those efforts have come up short.
"We have worked hard to avoid this outcome, but were ultimately not able to come to an agreement with our lenders to resolve these issues given the very tight and difficult European credit and refining markets," Petroplus's Chief Executive Jean-Paul Vettier said in the statement. "We are fully aware of the impact that this will have on our workforce."
What is scary is that instead of finding a resolution, banks decided to accelerate and seek to control the underlying assets, in what continues to confirm that all of Europe is desperately battling a wholesale collateral crunch, and banks will do anything to procure any viable assets, even send the obligor in bankruptcy court.
The company has been negotiating with its banks—BNP Paribas, Société Générale, Natixis, Credit Suisse, Morgan Stanley, Deutsche Bank, Rabobank, ING, and Comerzbank. But the negotiations "have not been successful," Petroplus said in the Tuesday statement.
The lenders have served notice of acceleration, commenced enforcement actions and appointed a receiver, moves that "constitute an event of default" under the lending facility, Petroplus said.
One wonders what happens to Europe when end-demand returns yet refinery capacity is stuck at recession levels. Then again, one probably should wonder what will happen to inflation once US economic growth returns (yes, we know), and banks suddenly inject $1.5 trillion in excess reserves, or 150% the currency base, into the economy.