Inventory Financing Agreement
We have entered into a Supply and Offtake Agreement and other associated agreements (together the “Supply and Offtake Agreement”) with J. Aron & Company (“J. Aron”). Pursuant to the Supply and Offtake Agreement, (i) J. Aron agreed to sell to us, and we agreed to buy from J. Aron, at market prices, crude oil for processing at the refinery and (ii) we agreed to sell, and J. Aron agreed to buy, at market prices, certain refined products produced at the refinery.
The Supply and Offtake Agreement also provided for the sale, at market prices, of our crude oil and certain refined product inventories to J. Aron, the lease to J. Aron of crude oil and refined product storage tanks located at our refinery, and to identify prospective purchasers of refined products on J. Aron’s behalf. The Supply and Offtake Agreement was amended in February 2013 and has an initial term that expires in May 2019. J. Aron may elect to terminate the Supply and Offtake Agreement prior to the initial term beginning in May 2016 and upon each anniversary thereof, on six months prior notice. We may elect to terminate in May 2018 on six months prior notice.
Following the expiration or termination of the Supply and Offtake Agreement, we are obligated to purchase the crude oil and refined product inventories then owned by J. Aron and located at the refinery.
At December 31, 2013 and 2012, we had net current payables to J. Aron for purchases of $32,081 and $48,311, respectively, and other non-current liabilities related to the original financing of $24,022 and $28,016, respectively, and a consignment receivable representing a deposit paid to J. Aron of $6,206 and $6,206, respectively.
Additionally, we had current payables of $990 and current receivables of $1,565 at December 31, 2013 and 2012, respectively, for forward commitments related to month-end consignment inventory target levels differing from projected levels and the associated pricing with these inventory level differences.
In association with the Supply and Offtake Agreement, we entered into a secured Credit Agreement (the “Standby LC Facility”) by and between the Company, as Borrower, and Goldman Sachs Bank USA, as Issuing Bank. The Standby LC Facility provides for up to $200,000 of letters of credit to be issued to J. Aron. Obligations under the Standby LC Facility are secured by a first priority lien on the existing and future accounts receivable and inventory of the Company. The Standby LC Facility includes customary events of default and restrictions on our activities. The Standby LC Facility contains no maintenance financial covenants. At this time there is no further availability under the Standby LC Facility. In August 2013, we amended the Standby LC Facility to extend the maturity date to July 2016