Inventory Financing Agreements

3 Months Ended

Mar. 31, 2023

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



	March 31, 2023		December 31, 2022
Supply and Offtake Agreement	$	646,536	$	732,511
Washington Refinery Intermediation Agreement	225,026		160,554
Obligations under inventory financing agreements	$	871,562	$	893,065

Supply and Offtake Agreement

Under the Second Amended and Restated Supply and Offtake Agreement (as amended, the “Supply and Offtake

Agreement”), J. Aron & Company LLC (“J. Aron”) finances the majority of the crude oil utilized at the Hawaii refinery, holds legal title to the crude oil stored in our storage tanks before processing until title passes to us at the tank outlet, and buys refined products produced at our Hawaii refinery, after which we repurchase the refined products prior to selling them to our retail locations or third parties. Under the Supply and Offtake Agreement, J. Aron may enter into agreements with third parties whereby J. Aron remits payments to these third parties for refinery procurement contracts for which we will become immediately obligated to reimburse J. Aron. 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. The Supply and Offtake Agreement also makes available a discretionary draw facility (the “Discretionary Draw Facility”) to Par Hawaii Refining, LLC (“PHR”).

On April 25, 2022, we entered into an amendment (the “S&O Amendment”) to the Supply and Offtake Agreement which, among other things, amended the maximum commitment amount under the Discretionary Draw Facility from $165 million to $215 million. The S&O Amendment further increased the limit in the borrowing base for eligible hydrocarbon inventory from $82.5 million to $107.5 million. The S&O Amendment further requires a $5.0 million reserve against the borrowing base at any time more than $165 million is outstanding in discretionary draw advances made to PHR; the reserve may be reduced by the posting of cash collateral by PHR in accordance with the terms of the S&O Amendment.

Under the Supply and Offtake Agreement, we pay or receive certain fees from J. Aron based on changes in market prices over time. In 2021 and 2022, we entered into multiple contracts to fix certain market fees for the period from January 2022 through May 2022 for $8.7 million. In 2023, we did not enter into any contracts to fix market fees related to our Supply and Offtake Agreement. We had no fixed market fees due to or from J. Aron as of March 31, 2023 and December 31, 2022. The amount due to or from J. Aron was recorded as an adjustment to our Obligations under inventory financing agreements as allowed under the Supply and Offtake Agreement. We did not recognize any fixed market fees for the three months ended March 31, 2023. We recognized fixed market fees of $7.3 million for the three months ended March 31, 2022, which were included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations.

Washington Refinery Intermediation Agreement

The Washington Refinery Intermediation Agreement with Merrill Lynch Commodities, Inc. (“MLC”) provides a structured financing arrangement based on U.S. Oil & Refining Co. and certain affiliated entities’ crude oil and refined products inventories and associated accounts receivable. On March 9, 2022, we and MLC amended the Washington Refinery Intermediation Agreement to advance the term expiry date from December 21, 2022 to March 31, 2023. On May 9, 2022, we and MLC amended the Washington Refinery Intermediation Agreement to increase the maximum borrowing capacity under the MLC receivable advances from $90 million to $115 million. On August 11, 2022, we and MLC entered into an amendment to the Washington Refinery Intermediation Agreement to establish the adjusted three-month term Secured Overnight Financing Rate ("SOFR") as the benchmark rate in replacement of the London Interbank Offered Rate ("LIBOR") and revise certain other terms and conditions. On November 2, 2022, we and MLC amended the Washington Refinery Intermediation Agreement to further extend the term through March 31, 2024 and reduce the maximum borrowing capacity to $110 million. On February 28, 2023, we and MLC amended the Washington Refinery Intermediation Agreement to facilitate entry into the Term Loan Credit Agreement.

The following table summarizes our outstanding borrowings, letters of credit, and contractual undertaking obligations under the intermediation agreements (in thousands):


	March 31, 2023		December 31, 2022
Discretionary Draw Facility
Outstanding borrowings (1)	$	186,965	$	204,843
Borrowing capacity	186,965		204,843
MLC receivable advances
Outstanding borrowings (1)	96,886		56,601
Borrowing capacity	96,886		56,601

J. Aron payment undertaking obligations	—		—
MLC issued letters of credit	94,440		115,001

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(1)Borrowings outstanding under the Discretionary Draw Facility and MLC receivable advances are included in Obligations under inventory financing agreements on our condensed consolidated balance sheets. Changes in the borrowings outstanding under these arrangements are included within Cash flows from financing activities on the condensed consolidated statements of cash flows.

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,
	2023		2022
Net fees and expenses:
Supply and Offtake Agreement
Inventory intermediation fees (1)	$	13,999	$	10,923
Interest expense and financing costs, net	1,725		1,244
Washington Refinery Intermediation Agreement
Inventory intermediation fees	$	750	$	750
Interest expense and financing costs, net	2,659		1,954

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(1)Inventory intermediation fees under the Supply and Offtake Agreement include market structure fees of $2.4 million and $4.4 million for the three months ended March 31, 2023 and 2022, respectively.

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 11—Derivatives for further information.