CHICAGO — Whiting, Ind., this week will issue $60 million of tax-exempt refunding bonds on behalf of BP Products North America Inc., which is in the midst of a $3.8 billion expansion of its Whiting-based oil refinery.
The northwest Indiana city is located 20 miles outside Chicago.
The deal will refinance variable-rate debt issued in 2005 that is remarketed daily into a fixed-rate mode. The bonds — which are unrated, like much of the debt Whiting issues on behalf of BP — are secured by the oil company, and not by a mortgage on or a security interest in the plant, according to bond documents. They mature in 2040.
Goldman, Sachs & Co. is remarketing the bonds.
BP’s Whiting facililty is the Midwest’s largest oil refinery, the fifth largest in the country, and one of the nation’s largest asphalt producers.
Whiting issues bonds on behalf of BP as part of a state program administered by the Indiana Finance Authority that allows municipalities to issue tax-exempt bonds on behalf of manufacturing and industrial companies located in their districts.
Under Internal Revenue Service rules, the bonds must finance pollution-control projects in order to qualify for a tax exemption.
The bonds were originally issued in 2005 to finance construction of industrial sewage and solid-waste disposal facilities as part of a pollution-control effort.
A chunk of the bonds recently traded with a yield of 0.09%.
BP’s $3.8 billion expansion is scheduled for completion in 2011. It will allow the energy giant to process an additional 260,000 barrels of Canadian oil daily, the company said. The project will also boost its gasoline and diesel-fuel refining capacity by 15%, or 1.7 million gallons a day.
The expansion sparked widespread protests from environmentalists. Opponents sued to block the project, saying it would mean a spike in hazardous pollutants and violate federal clean air rules. A federal judge dismissed the litigation in 2009.
In 2007, under intense public and political pressure from Chicago, BP agreed to scale back its plan to increase the pollutants it releases into Lake Michigan as part of the expansion.
At the time, Chicago officials’ anger over the water permits prompted Alderman Ed Burke to bar Goldman Sachs and Banc of America Securities from engaging in any city bond business, as board members of those investment banks were on BP’s board of directors. The ban was dropped when BP agreed to scale back its expansion plan.
BP’s northwest Indiana presence covers Whiting, Hammond, and East Chicago. With a population of only 5,000, Whiting is dominated by BP — more than half of all property taxes come from the oil conglomerate, according to city officials.
Neither BP or Whiting officials were able to comment by press time.
In June the city issued $18.3 million of tax-increment revenue bonds to finance a development on the city’s Lake Michigan lakefront. BP is the TIF district’s largest taxpayer, and its taxes will largely back the bonds. The project will feature a historical museum, infrastructure, bike paths, sidewalks, and band shells.