FOR IMMEDIATE RELEASE
Dec. 17, 2019
CONTACT:
Carter Dougherty, Americans for Financial Reform, carter@ourfinancialsecurity.org, (202) 251-6700
Seth Gladstone, Food & Water Watch, sgladstone@fwwatch.org, (917) 363-6615
Melissa Uribe, United for Respect, melissa.uribe@united4respect.org, (510) 863-4011
Private Equity Ownership of Texas Plant Highlights Possible Dangers to Health
Cost-Cutting Model in Petrochemicals Could Increase Risks
Following last month’s explosions at a petrochemical plant near Beaumont, Texas on the Gulf Coast, a new report draws attention to the private equity industry’s growing control of companies in this sector through a business model that may increase health, environmental, and safety risks.
On Nov. 27, two explosions at a petrochemical plant in Port Neches, Texas forced the evacuation of over 50,000 people due to the risk of another blast and possible release of carcinogenic materials. Residents near the facility are still living with the aftereffects of this disaster and concerns about the long-term impact on health.
The report, “Private Equity’s Chemical Catastrophe in Texas,” connects the dots between SK Capital Partners, the New York-based private equity firm that co-owns the facility’s operator, TPC Group, and possible risks from its ownership. SK Capital Partners also owns 7 other chemical plants in Texas as part of a portfolio of 33 plants across the United States.
“My entire life, I’ve watched my father, husband, and neighbors work in dangerous conditions at the oil refineries to provide for our families. The Port Neches explosion is our worst nightmare come true,” said Angela Lopez, a resident of Beaumont. “The sector is important to the region’s economy. But I don’t want to lose family and loved ones to the greed of companies like TPC and their private equity owners. All of them need to answer to community members like me and 50,000 people in the area whose lives and health they’ve risked for their own profit.”
The TPC Group (owned by SK Capital along with private equity firm First Reserve) Port Neches explosion was the second private equity-owned petrochemical plant disaster in the past six months. In June 2019, an explosion at the Carlyle Group-owned Philadelphia Energy Solutions injured 5 workers. Facilities owned by SK Capital portfolio companies are persistent violators of health and safety rules across the Houston-Beaumont Gulf Coast region, according to the report.
“Private equity firms have a history of cost-cutting at the expense of safety standards in other sectors where they control businesses. A similar approach could be extremely dangerous, and even deadly, if it compromises the maintenance and safety of petrochemical plants,” said Patrick Woodall, senior researcher at Americans for Financial Reform. “The private equity industry’s ability to profit from risky practices and avoid responsibility for legal violations may threaten local communities and the environment.”
Over the past 5 years, the facilities owned by SK Capital in Texas have paid about $1.9 million to settle violations identified by the U.S. Environmental Protection Agency and the Texas Commission on Environmental Quality. The EPA has found that 6 of the 7 Houston area SK Capital-owned chemical plants were in repeated violation of federal environmental law, including facilities owned by the TPC Group, Ascend Performance Materials, Foremark Performance Chemicals, and the SI Group.
“The petrochemical industry and the fossil fuel extraction that drives it couldn’t survive without mindless, profit-driven investment from Wall Street speculators,” said Wenonah Hauter, executive director of Food & Water Watch. “It’s time we hold Wall Street accountable for the environmental destruction it enables and make the firms getting rich off pollution finally pay to clean up our world.”
SK Capital’s leveraged buyouts of chemical and petrochemical companies are backed with large portions of debt. The purchase of TPC Group involved a $655 million loan for the total $1.1 billion purchase price, money that TPC, not SK Capital, will have to repay. SK Capital has also forced its portfolio companies borrow money in order to fund dividend payments to its private equity owners. This financial engineering often allows private equity firms to extract wealth from the companies they purchase, but can result in intense pressure to cut costs, resulting in layoffs or reduced spending on operations that can lead to substandard products or services.
Legislation has been proposed in Congress that would reform the most egregious practices of the private equity industry. The Stop Wall Street Looting Act (S. 2155/H.R. 3848) would directly attack the perverse incentives that reward predatory practices by private equity general partners. By closing loopholes and making fundamental changes in legal liability for private equity general partners, it would curb the excesses of private equity insiders, without affecting productive partnerships that genuinely assist portfolio firms. It would also end the power of private equity insiders to engage in behavior that exploits and harms portfolio firms and limited partners, and strengthen the rights of workers, investors, and other stakeholders.
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