Inventory Financing Agreements

9 Months Ended

Sep. 30, 2021

The following table summarizes our outstanding obligations under our inventory financing agreements (in thousands):



	September 30, 2021		December 31, 2020
Supply and Offtake Agreements	$	482,250	$	312,185
Washington Refinery Intermediation Agreement	186,179		111,501
Obligations under inventory financing agreements	$	668,429	$	423,686

Supply and Offtake Agreement

We have an agreement with J. Aron & Company LLC (“J. Aron”) to support our Hawaii refining operations. As of December 31, 2020, a deferred payment arrangement under the agreement allowed for us to defer payments owed under the agreements up to the lesser of $165 million or 85% of eligible accounts receivable and inventory. As of December 31, 2020, the capacity of the deferred payment arrangement was $80.1 million and we had $78.6 million outstanding. On May 4, 2021, we amended the first amended and restated supply and offtake agreement and extended the term from May 31, 2021, to June 30, 2021.

On June 1, 2021, we entered into the Second Amended and Restated Supply and Offtake Agreement (as amended, the “Supply and Offtake Agreement”). The Supply and Offtake Agreement expires May 31, 2024 (as extended, the “Expiration Date”), subject to a one-year extension at the mutual agreement of the parties at least 120 days prior to the Expiration Date. Under the Supply and Offtake Agreement, we are subject to an early termination fee if we terminate the Supply and Offtake Agreement on or prior to May 31, 2023. Under the Supply and Offtake Agreement, Par Hawaii Refining, LLC (“PHR”) is required to maintain minimum liquidity of not less than $15 million for any three consecutive business days, with at least $7.5 million of such liquidity consisting of cash and cash equivalents. Commencing on July 1, 2021 (the “Adjustment Date”), the Supply and Offtake Agreement makes available a discretionary draw facility (the “Discretionary Draw Facility”) to PHR.

The Discretionary Draw Facility is available to PHR from the Adjustment Date up to but excluding the Expiration Date. Under the Discretionary Draw Facility, J. Aron agreed to make advances to PHR from time to time at the request of PHR, subject to the satisfaction of certain conditions precedent, in an aggregate principal amount at any one time outstanding not to exceed the lesser of $165 million or the borrowing base, which is calculated as (x) 85% of the eligible accounts receivables, plus (y) the lesser of $82.5 million and 85% of eligible hydrocarbon inventory, minus (z) such reserves as established by J. Aron in respect of eligible receivables and eligible hydrocarbon inventory. The advances under the Discretionary Draw Facility bear interest at a rate equal to three-month LIBOR plus 4.00% per annum until May 31, 2022. Beginning on June 1, 2022, the advances will bear interest at a rate equal to LIBOR (or LIBOR equivalent) plus an applicable spread between 3.50% and 4.00% to be determined annually based on certain financial ratios. As of September 30, 2021, our outstanding balance under the Discretionary Draw Facility was $125.2 million and its capacity was $142.4 million.

Under the supply and offtake agreements, we pay or receive certain fees from J. Aron based on changes in market prices over time. In 2017, we fixed the market fee for the period from June 1, 2018 through May 2021 for $2.2 million. In 2020, we fixed the market fee for the period from February 1, 2020 through April 1, 2021 for an additional $0.8 million to be settled in fifteen payments. In the third quarter of 2021, we entered into multiple contracts to fix certain market fees for the period from September 2021 through May 2022 for $6.6 million. The amount due to or from J. Aron is recorded as an adjustment to our Obligations under inventory financing agreements as allowed under the supply and offtake agreements. As of September 30, 2021, and December 31, 2020, we had a payable of $6.6 million and a receivable of $0.5 million, respectively.

Washington Refinery Intermediation Agreement

The Washington Refinery Intermediation Agreement with MLC provides a structured financing arrangement based on U.S. Oil’s crude oil and refined products inventories and associated accounts receivable. On February 11, 2021, we and MLC amended the Washington Refinery Intermediation Agreement and extended the term through March 31, 2022. This amendment also includes transition guidance on the interest rate of the MLC receivable advances to be based on another industry standard benchmark rate that will be effective upon LIBOR’s scheduled retirement at the end of 2021.

As of September 30, 2021, our outstanding balance under the MLC receivable advances was equal to our borrowing base of $60.6 million. As of December 31, 2020, our outstanding balance under the MLC receivable advances was equal to our borrowing base of $41.1 million. Additionally, as of September 30, 2021, and December 31, 2020, we had approximately $135.9 million and $93.6 million in letters of credit outstanding through MLC’s credit support, respectively.

The following table summarizes the inventory intermediation fees, which are included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations, and Interest expense and financing costs, net related to the intermediation agreements (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net fees and expenses:
Supply and Offtake Agreement
Inventory intermediation fees	$	4,988	$	2,216	$	14,038	$	8,882
Interest expense and financing costs, net	754		411		2,078		2,473
Washington Refinery Intermediation Agreement
Inventory intermediation fees	$	750	$	1,019	$	2,486	$	3,138
Interest expense and financing costs, net	1,276		472		3,387		2,196

The Supply and Offtake Agreement and the Washington Refinery Intermediation Agreement also provide us with the ability to economically hedge price risk on our inventories and crude oil purchases. Please read Note 10—Derivatives for further information.