Hovensa LLC, a Caribbean oil refiner co-owned by Hess Corp., faces opposition to its bankruptcy reorganization plans from the government of the U.S. Virgin Islands, which is pressing the company to clean up widespread pollution on the island of St. Croix.
Government lawyers made their opposition clear Thursday at the first court hearing for Hovensa, which filed for bankruptcy on Sept. 15.
U.S. Bankruptcy Judge Mary Walrath overruled the islands’ opening objections to Hovensa’s request for an emergency loan to fund limited operations while the company reorganizes.
She gave the company provisional permission to borrow as much as $10 million. Hovensa will return to court on Oct. 8 to seek to boost its borrowing authority to $40 million.
Virgin Islands lawyers said they would also return that day to make a more detailed argument against the loan request.
Hovensa’s owners, Hess and a unit of the Venezuelan national oil company, are lending the refinery money to keep operating while in bankruptcy, according to court records.
Lawyers for the Virgin Islands say the owners are using the loan to win legal protection from lawsuits they would normally not be entitled to.
Walrath said the government could challenge any proposed protections at the October hearing, which will be held in Wilmington, Delaware, where she is based.
Hovensa filed for bankruptcy with plans to sell itself at an auction where the initial bid will be $184 million, according to court records.
Environmental regulators sued Hovensa in 2005, accusing it of contaminating drinking water and damaging wildlife and marine environment, according to court records. The company settled by promising to pay the Virgin Islands $43.5 million.
That lawsuit and an air-pollution case brought by the U.S. Environmental Protection Agency compounded financial problems brought on by falling oil prices and increased competition
Hovensa said in court papers that the auction could raise enough money to pay a $40 million debt owed to the government of the Virgin Islands related to the environmental settlement.
The case is In re Hovensa LLC, 15-bk-10003, U.S. Bankruptcy Court, District of the Virgin Islands (St. Croix).