Bank of America Corp (NYSE:BAC) has replaced America’s biggest bank, J.P. Morgan in a major oil financing deal with Philadelphia Energy Solutions. The bank will provide working capital and inventory financing to the refinery.
However, the Bank of America Corp (NYSE:BAC) deal won’t include all the things that were in the J.P. Morgan deal as it excludes physical oil trading and logistical activities. The magnitude of the financing makes it one of the biggest in the U.S. The refinery is also one of the biggest in North America, processing a total of 330,000 barrels daily and accounting for 25% of East Coast crude oil processing capacity.
Philadelphia Energy Solutions is a joint venture of Sunoco and Carlyle Group, and they have been looking for a financier that would let them take control of their logistical activities without interfering or creating any form of competition in the operating space.
The financing terms weren’t disclosed, though the deal was sealed yesterday.
J.P. Morgan came into the deal in 2012 when Carlyle took control of it. It supplied the company with approximately 120 million barrels every year where the bank was paid a fee on every barrel supplied. The bank was also earning interest on financing offered to the refinery while at the same time getting profits from trading on the products.
In as much as it will be big in nature, the role of Bank of America Corp (NYSE:BAC) will be limited to specific areas. These include ensuring that suppliers are paid promptly, approving deal terms, and protecting the refinery from possible price risks. Much of the revenue that the bank will be earning will come from the financing fees, something way below what J.P. Morgan used to earn.
Sources familiar with the matter say that in as much as the benefits will be limited to financing fees, Bank of America Corp (NYSE:BAC) won’t have much costs and risks as did J.P. Morgan, making the deal a good one for the bank.