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Inventory Financing Agreements | 9 Months Ended
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Sep. 30, 2023
Other Commitments [Abstract] |
Inventory Financing Agreements | Inventory Financing Agreements The following table summarizes our outstanding obligations under our inventory financing agreements (in thousands):
| September 30, 2023 |  | December 31, 2022
Supply and Offtake Agreement | $ | 680,148 |  |  | $ | 732,511 |
Washington Refinery Intermediation Agreement | 161,690 |  |  | 160,554 |
LC Facility due 2024 | — |  |  | — |
Obligations under inventory financing agreements | $ | 841,838 |  |  | $ | 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. On February 13, 2023, we entered into an amendment to the Supply and Offtake Agreement to, among other things, facilitate entry into the Term Loan Credit Agreement. On June 21, 2023, we entered into an amendment (the “June 2023 S&O Amendment”) to the Supply and Offtake Agreement to establish the Secured Overnight Financing Rate ("SOFR"), as defined in the Supply and Offtake Agreement, as the benchmark rate in replacement of the London Interbank Offered Rate ("LIBOR") and revise certain other terms and conditions, effective July 1, 2023. On July 26, 2023, we entered into an amendment (the “July 2023 S&O Amendment”) to the Supply and Offtake Agreement which, among other things, allowed PHR to enter into a crude oil procurement contract supported by a letter of credit under the LC Facility (as defined below) and have its purchases funded by J. Aron, subject to certain conditions. Please read below for further information on the LC Facility. 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. For the three and nine months ended September 30, 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 September 30, 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 and nine months ended September 30, 2023 or for the three months ended September 30, 2022. We recognized fixed market fees of $8.8 million for the nine months ended September 30, 2022, which were included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations. LC Facility due 2024 On July 26, 2023, PHR, as borrower, the lenders and letter of credit issuing banks party thereto (collectively, the “LC Facility Lenders”), MUFG Bank, Ltd., as administrative agent (the “LC Facility Agent”), sub-collateral agent, joint lead arranger and sole bookrunner, Macquarie Bank Limited, as joint lead arranger, and U.S. Bank Trust Company, National Association, as collateral agent (the “Collateral Agent”), entered into an Uncommitted Credit Agreement (the “LC Facility Agreement”) whereby the LC Facility Lenders agree, on an uncommitted and absolutely discretionary basis, to consider making revolving credit loans and issuing and participating in letters of credit in the maximum available amount of $120.0 million in the aggregate (the “LC Facility”) with the right to request an increase up to $350.0 million in the aggregate, subject to certain conditions. Letters of credit issued under the LC Facility are intended to finance and provide credit support for certain of PHR’s purchases of crude oil. In addition, revolving credit loans may be used to pay suppliers. The LC Facility will mature on July 25, 2024, unless the obligations are accelerated and the maximum credit limits of the LC Facility Lenders are terminated prior to such date. The revolving credit loans under the LC Facility bear interest at a 1) SOFR rate plus the applicable margin of 2.5%, 2) cost of funds rate plus applicable margin of 2.5% or) alternate base rate plus 1.5%, as more particularly described in the LC Facility Agreement. PHR has agreed to pay certain fees and commissions with respect to letters of credit under the LC Facility, including, but not limited to, a letter of credit commission, in an amount equal to the greater of $750 (in dollars) and (1) 2.00% per annum of the face amount of any trade letter of credit, or (2) 2.25% per annum of the face amount of any performance letter of credit, each payable monthly in arrears. In addition, PHR shall pay a fronting fee equal to 0.25% of the face amount of each letter of credit issued by a letter of credit issuing bank, payable monthly in arrears. The LC Facility Agreement requires PHR to comply with various covenants, including compliance with the minimum liquidity covenant. PHR agrees that it shall not permit the liquidity of PHR for any three consecutive business days to be less than $15 million at any time, with at least $15 million of such liquidity consisting of cash and cash equivalents. PHR has granted a lien and security interest in certain of its assets to the Collateral Agent. PHR is also required to provide cash collateral to the LC Facility Agent as a condition to issuance of certain letters of credit. 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. “USOR” and certain affiliated entities’ crude oil and refined products inventories and associated accounts receivable. 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 SOFR rate as the benchmark rate in replacement of the LIBOR rate 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, and on April 26, 2023, we and MLC amended the Washington Refinery Intermediation Agreement to facilitate entry into the ABL Credit Facility. On October 4, 2023, USOR entered into a Wind-Down and Termination Agreement; please read Note 20—Subsequent Events for further information The following table summarizes our outstanding borrowings, letters of credit, and contractual undertaking obligations under the intermediation agreements (in thousands):
| September 30, 2023 |  | December 31, 2022
Discretionary Draw Facility |  |  |
Outstanding borrowings (1) | $ | 174,999 |  |  | $ | 204,843 |
Borrowing capacity | 174,999 |  |  | 204,843 |
MLC receivable advances |  |  |
Outstanding borrowings (1) | 34,090 |  |  | 56,601 |
Borrowing capacity | 72,090 |  |  | 56,601 |
LC Facility due 2024 |  |  |
Outstanding borrowings | — |  |  | — |
Borrowing capacity | 13,905 |  |  | — |
MLC issued letters of credit | 68,900 |  |  | 115,001 |
LC Facility issued letters of credit | 96,450 |  |  | — |
______________________________________________________ (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 September 30, |  | Nine Months Ended September 30,
|  |  |  | 2023 |  | 2022 |  | 2023 |  | 2022
Net fees and expenses: |  |  |  |  |  |  |  |  |  |
Supply and Offtake Agreement |  |  |  |  |  |  |  |  |  |
Inventory intermediation fees (1) |  |  |  | $ | 15,643 |  |  | $ | 40,112 |  |  | $ | 42,270 |  |  | $ | 79,557 |
Interest expense and financing costs, net |  |  |  | 2,214 |  |  | 1,453 |  |  | 5,834 |  |  | 4,555 |
Washington Refinery Intermediation Agreement |  |  |  |  |  |  |  |  |  |
Inventory intermediation fees |  |  |  | $ | 750 |  |  | $ | 750 |  |  | $ | 2,250 |  |  | $ | 2,250 |
Interest expense and financing costs, net |  |  |  | 3,278 |  |  | 2,636 |  |  | 9,250 |  |  | 7,533 |
LC Facility due 2024 |  |  |  |  |  |  |  |  |  |
Interest expense and financing costs, net |  |  |  | $ | 54 |  |  | — |  |  | $ | 54 |  |  | — |
___________________________________________________ (1)Inventory intermediation fees under the Supply and Offtake Agreement include market structure fees of $5.1 million and $30.2 million for the three months ended September 30, 2023 and 2022 and $9.3 million and $54.1 million for the nine months ended September 30, 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 12—Derivatives for further information.

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