Inventory Financing Agreements

3 Months Ended

Mar. 31, 2021

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



	March 31, 2021		December 31, 2020
Supply and Offtake Agreements	$	466,071	$	312,185
Washington Refinery Intermediation Agreement	126,550		111,501
Obligations under inventory financing agreements	$	592,621	$	423,686

Supply and Offtake Agreements

We have several agreements with J. Aron & Company LLC (“J. Aron”) to support our Hawaii refining operations (the “Supply and Offtake Agreements”). On May 4, 2021, we amended the Supply and Offtake Agreements and extended the term expiry date from May 31, 2021, to June 30, 2021. We expect to finalize a new multi-year agreement during the second quarter of 2021. As of March 31, 2021, we had no obligations due to J. Aron under this contractual undertakings agreement.

The Supply and Offtake Agreements also include a deferred payment arrangement (“Deferred Payment Arrangement”) whereby we can defer payments owed under the agreements up to the lesser of $165 million or 85% of the eligible accounts receivable and inventory. Upon execution of the Supply and Offtake Agreements, we paid J. Aron a deferral arrangement fee of $1.3 million. As of March 31, 2021 and December 31, 2020, the capacity of the Deferred Payment Arrangement was

$102.0 million and $80.1 million, respectively. As of March 31, 2021 and December 31, 2020, we had $96.2 million and $78.6 million outstanding, respectively, under the Deferred Payment Arrangement.

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. The receivable from J. Aron was recorded as a reduction to our Obligations under inventory financing agreements as allowed under the Supply and Offtake Agreements. As of March 31, 2021 and December 31, 2020, the receivable was $0.2 million and $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 March 31, 2021 and December 31, 2020, our outstanding balance under the MLC receivable advances was equal to our borrowing base of $68.0 million and $41.1 million, respectively. Additionally, as of March 31, 2021 and December 31, 2020, we had approximately $95.8 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 March 31,
	2021		2020
Net fees and expenses:
Supply and Offtake Agreements
Inventory intermediation fees	$	3,770	$	6,870
Interest expense and financing costs, net	846		1,349
Washington Refinery Intermediation Agreement
Inventory intermediation fees	$	971	$	1,107
Interest expense and financing costs, net	977		997

The Supply and Offtake Agreements 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.