Delek Logistics Partners, LP - Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated July 26, 2013, details a material asset acquisition by Delek Logistics Partners, LP (the "Partnership") through its subsidiary, Delek Marketing and Supply, LP ("Marketing"). The transaction involves the purchase of refined products terminal and storage assets from Delek Refining, Ltd., a wholly-owned subsidiary of the Partnership's majority owner, Delek US Holdings, Inc. ("Delek US").
Key Financial Metrics and Transaction Details
- Total Purchase Price: $94.8 million in cash.
- Financing Structure: $77.0 million financed via borrowings under the Partnership's senior secured revolving credit facility; $17.8 million funded from cash on hand.
- Assets Acquired:
- Tyler Terminal: Truck loading rack with nine bays; capacity of approximately 72,000 barrels per day (bpd). Historical throughput (2012) was approximately 55,000 bpd.
- Tyler Storage Tanks: 96 tanks with an aggregate shell capacity of approximately 2.0 million barrels.
- Related Agreements:
- Throughput and Tankage Agreement: Delek Refining committed to a minimum throughput of 50,000 bpd at $0.35 per barrel and a monthly storage fee of $841,667. Fees are indexed annually for inflation. Term is 8 years with two 4-year renewal options.
- Administrative Fee Increase: Annual fee payable to Delek US for corporate services increased from $2.7 million to $3.0 million.
- Site Services Fee: Initial annual fee of $0.2 million payable to Delek Refining for shared services.
Material Changes and Contractual Modifications
The filing reports the termination of the Operation and Management Services Agreement (OMS Agreement) dated November 7, 2012, with no early termination penalties incurred. Concurrently, the Partnership entered into an Amended and Restated Omnibus Agreement with Delek US and affiliates, which includes significant reimbursement provisions for capital expenditures and maintenance:
- Regulatory Compliance Reimbursement: Delek US agreed to reimburse the Partnership for operating expenses and capital expenditures related to inspections, maintenance, and repairs to ensure compliance with regulatory standards for five years following the transaction.
- Maintenance CapEx Reimbursement Thresholds:
- July 26, 2013 – Sept 30, 2013: Reimbursement for expenditures exceeding $0.4 million.
- Sept 30, 2013 – Dec 31, 2013: Reimbursement for expenditures exceeding $1.35 million.
- Calendar Year 2014 and thereafter: Reimbursement for expenditures exceeding $5.4 million annually.
- Indemnification: Delek US agreed to indemnify the Partnership for environmental damages related to the transferred tanks and for obligations arising from the consent decree in United States v. Tyler Holding Company, Inc.
Outlook, Risks, and Contingencies
The transaction creates a long-term, contracted revenue stream via the Throughput and Tankage Agreement, securing a minimum volume of 50,000 bpd for eight years. However, the Partnership assumes operational risks associated with the assets, mitigated by the indemnification and reimbursement agreements with Delek US. The filing notes that failure by Marketing to maintain required throughput and storage capacities could result in fee reductions. Pro forma financial information for the year ended December 31, 2012, and the quarter ended March 31, 2013, is included in Exhibit 99.1 but specific numerical values are not detailed in the text of this report.
Investor Verification Checklist
- Review the full text of the Asset Purchase Agreement (Exhibit 10.1) for specific representations and warranties.
- Examine the Unaudited Pro Forma Condensed Combined Consolidated Financial Statements (Exhibit 99.1) to assess the immediate impact on leverage and earnings.
- Verify the status of the consent decree in United States v. Tyler Holding Company, Inc. to understand the scope of the indemnification provided by Delek US.
- Monitor the Partnership's credit facility utilization following the $77.0 million drawdown.
- Confirm the timeline for the API 653 inspection dates of the acquired tanks to determine the duration of environmental indemnification.