Drexel Drilled Deeper Hole By Investing in Oil Refiner : Investment: A $65-million loan gave the firm controlling interest in Paramount Petroleum. Now the oil company has declared bankruptcy.
Drexel Burnham Lambert Inc., which has admitted financial troubles of its own, also finds itself a victim of the rough-and-tumble oil business through its controlling interest in beleaguered Paramount Petroleum Corp., which filed for bankruptcy protection last month.
Drexel owns an interest in Paramount by virtue of a $65-million loan made to finance the acquisition of the company by an investors group in 1988--ironically to rescue Paramount from a 1984 filing under Chapter 11 of the federal bankruptcy code, said Paramount lawyer Alan Pedlar with Stutman, Treister & Glatt in Los Angeles.
Paramount, an independent oil refiner, got itself into trouble this time around partly by signing contracts to deliver refined products to Unocal Corp. and World Oil Co. at rates that underestimated current oil prices. As a result, Paramount lost $30 million in 1989 on the two contracts, Pedlar said.
“Those contracts have not been moneymakers for the company,” said Peter W. Clapp, a lawyer for Skadden, Arps, Slate, Meagher & Flom, which is representing Drexel.
Meanwhile, Paramount has been trying unsuccessfully to sell its 46,500-barrel-per-day refinery, which produces asphalt and other products in the city of Paramount.
The company was negotiating with an Indonesian corporation, Tirtamas Majutama, but talks fell through in January, said Paramount Chief Executive James McDonald.
When the Indonesians withdrew their offer, Paramount’s other major secured creditor, Dutch lender Nederlandsche Middenstandsbank N.V., or NMB Bank, terminated an agreement not to act on a $50-million loan, Pedlar said. That took place Jan. 18. By the following Monday, Paramount had made its latest bankruptcy filing.
The Indonesians were only one of a dozen or so groups that Paramount talked with about buying the refinery, McDonald said. The others included Bernard B. Roth, chairman and chief executive of World Oil, an independent oil refiner and marketer, Pedlar said.
Paramount emerged from the earlier bankruptcy filing under the investors group, called Alaska Pacific Inc., that was led by Santa Barbara oilman Aubrey Campbell and his son, J. Timothy Campbell.
Drexel owns 57% and Alaska Pacific 43% of the company’s voting securities, though Drexel holds a proxy to vote 100% of the company’s securities, according to the bankruptcy filing dated Jan. 22.
The filing in U.S. District Court in Los Angeles lists Paramount’s total assets at $106.5 million and total liabilities at $138.8 million.
Last month, Paramount reached agreement with NMB Bank to use cash collateral to continue operating for 60 days while a buyer is sought for the refinery.
