Delek Logistics Partners, LP - Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated March 31, 2020, details a material asset acquisition and related corporate actions by Delek Logistics Partners, LP ("Delek Logistics"). The filing reports the completion of a transaction involving the acquisition of a crude oil gathering system in Texas from its parent company, Delek US Holdings, Inc. ("Delek US").
Key Financial Metrics and Transaction Details
- Total Consideration: Approximately $145.5 million (subject to post-closing adjustments).
- Payment Structure:
- $100 million in cash, financed via borrowings under Delek Logistics' revolving credit facility.
- 5,000,000 newly issued common units of limited partnership interest ("New Units").
- Asset Acquired: Crude oil gathering system located in Howard, Borden, and Martin Counties, Texas, and related assets.
- Related Commitments: Under a Throughput and Deficiency Agreement, the operator agreed to spend up to $33.8 million over three years to connect additional receipt points.
- Throughput Commitments: The shipper (Lion Oil Trading & Transportation, LLC) committed to ship 120,000 barrels per day (bpd) on the system and 50,000 bpd to a redelivery point.
Material Changes and Corporate Actions
- Acquisition Completion: On March 31, 2020, Delek Logistics consummated the acquisition of the gathering system from Delek US subsidiaries.
- Equity Issuance: Issued 5,000,000 New Units to Delek US and corresponding General Partner Units to maintain the 2% General Partner Interest. These sales were exempt from registration under Section 4(a)(2) of the Securities Act.
- Partnership Agreement Amendment: Adopted Amendment No. 2 to the Partnership Agreement, waiving distributions on Incentive Distribution Rights (IDRs) associated with the New Units through at least the quarter ending March 31, 2022. The waiver terminates if distributable cash flow exceeds 110% of the amount that would have been paid without the waiver.
- Debt Guarantees: DKL Permian Gathering, LLC ("DKL PG") executed a supplemental indenture to become a guarantor under the existing Indenture and the revolving credit facility.
Outlook, Risks, and Management Commentary
- Related Party Transaction: The transaction was approved by the Conflicts Committee of the General Partner's Board, comprised solely of independent directors. An independent financial advisor opined that the consideration was fair to Delek Logistics and unaffiliated unitholders.
- Operational Outlook: The Throughput and Deficiency Agreement has an initial term of 10 years, with options for two additional five-year extensions. Following the initial term, it continues on a year-to-year basis unless terminated with 90 days' notice.
- Financial Impact: The transaction increases leverage through the $100 million cash portion financed by the revolving credit facility and dilutes existing unitholders via the issuance of 5 million new units, though IDRs on these units are temporarily waived.
Investor Verification Checklist
- Verify the exact post-closing adjustments to the $145.5 million purchase price.
- Review the full text of the Throughput and Deficiency Agreement (Exhibit 10.1) for specific deficiency payment terms and the 12.5% return mechanism on the $33.8 million capital expenditure.
- Assess the impact of the IDR waiver on future distribution yields and the specific conditions required to terminate the waiver (110% distributable cash flow threshold).
- Confirm the updated debt covenants and leverage ratios following the $100 million draw on the revolving credit facility.
- Examine the related party transaction disclosures in the most recent Form 10-K to understand the broader commercial relationship between Delek Logistics and Delek US.