Business Context and Reporting Period
Company: CVR Partners, LP
Filing Type: Form 8-K (Current Report)
Date of Report: February 1, 2016
Subject: Proposed settlement of litigation regarding the merger agreement with Rentech Nitrogen Partners, L.P. (dated August 9, 2015) and supplemental disclosures to the proxy statement/prospectus.
Key Financial Metrics and Valuation Data
This filing does not report historical revenue, profit, or cash flow for CVR Partners. It provides projected financial data for Rentech Nitrogen and valuation ranges derived from Morgan Stanley's analysis used for the merger fairness opinion.
- Transaction Fees: Rentech Nitrogen agreed to pay a $10 million expense reimbursement and a $31.2 million termination fee under specific conditions.
- Rentech Nitrogen Projected EBITDA (2016-2019): $88.1M (2016), $111.2M (2017), $92.0M (2018), $123.6M (2019).
- Rentech Nitrogen Projected Cash Available for Distribution (2016-2019): $50.3M (2016), $79.2M (2017), $53.8M (2018), $91.2M (2019).
- Implied Valuation Ranges (Morgan Stanley DCF):
- Rentech Nitrogen: $12.50 to $15.02 per unit.
- CVR Partners: $11.44 to $12.87 per unit.
- Implied Valuation Ranges (Morgan Stanley Distribution Discount):
- Rentech Nitrogen: $13.97 to $15.07 per unit.
- CVR Partners: $11.77 to $12.97 per unit.
Material Changes and Supplemental Disclosures
The filing provides supplemental disclosures replacing specific sections of the proxy statement/prospectus to address litigation settlement terms and valuation methodologies:
- Settlement Agreement: Plaintiffs and defendants entered a Memorandum of Understanding (MOU) on February 1, 2016, to settle class action lawsuits challenging the merger. The settlement is contingent on court approval and the effectiveness of the mergers.
- Valuation Methodology Updates: Detailed assumptions for Discounted Cash Flow (DCF) and Distribution Discount analyses were disclosed, including terminal EBITDA multiples (7.25x-9.50x) and discount rates (8.99%-10.72%).
- Accretion/Dilution Analysis: The merger is projected to be accretive to CVR Partners' distributable cash per unit (DPU) for 2016-2019. For Rentech Nitrogen, the merger is accretive in 2016 and 2018 (with reinvestment) but dilutive in 2017 and 2019.
- Ownership Contribution: Rentech Nitrogen unitholders are projected to own approximately 35.8% of the combined company.
Guidance, Risks, and Contingencies
- Settlement Contingencies: The proposed settlement requires court approval and the successful consummation of the mergers. If not approved, defendants will continue to defend the lawsuits.
- Attorneys' Fees: Plaintiffs' counsel will seek an award of attorneys' fees and expenses to be paid by Rentech Nitrogen or its successor.
- Forward-Looking Statements: The document contains projections regarding future operating results, cash flows, and the benefits of the merger. These are subject to risks and uncertainties, including market conditions and the ability to realize synergies.
- Turnaround Expenses: Rentech Nitrogen projects $5.0 million in turnaround expenses in 2016 and $6.0 million in 2018, which impact Adjusted EBITDA calculations.
Investor Verification Checklist
- Verify the status of the court approval for the proposed litigation settlement in the United States District Court for the Central District of California.
- Review the definitive proxy statement/prospectus (Form S-4) for the full text of the merger agreement and risk factors.
- Confirm the final terms of the settlement, including the specific amount of attorneys' fees to be paid by Rentech Nitrogen.
- Assess the sensitivity of the projected EBITDA and cash flows to changes in UAN and ammonia pricing assumptions provided in the filing.
- Monitor the accretion/dilution impact on distributable cash per unit, noting the projected dilution for Rentech Nitrogen unitholders in 2017 and 2019.