Business Context and Reporting Period
This Form 8-K Current Report, dated May 12, 2015, details material definitive agreements and asset transactions involving PBF Energy Inc. ("PBF Energy") and its consolidated subsidiary, PBF Logistics LP ("the Partnership"). The primary events include the contribution of pipeline and truck rack assets to the Partnership and the issuance of senior notes to fund the transaction and repay existing debt.
Key Financial Metrics and Transaction Details
- Asset Contribution Consideration: Total consideration of $143.0 million paid by the Partnership to PBF LLC for the Delaware City Products Pipeline and Truck Rack Assets.
- Cash: $112.5 million.
- Equity: $30.5 million in Partnership common units (1,288,420 units).
- Debt Issuance: The Partnership issued $350.0 million aggregate principal amount of 6.875% Senior Notes due 2023.
- Net Proceeds: Approximately $343.0 million.
- Use of Proceeds: $88.0 million for the asset acquisition cash consideration; $255.0 million to repay outstanding indebtedness under the revolving credit facility.
- Ownership Structure: Following the transaction, PBF Energy owns approximately 53.9% of the Partnership's limited partner interest (2,572,944 common units and 15,886,553 subordinated units) and controls the general partner interest.
- Service Fees:
- Omnibus Agreement annual fee increased to $4.85 million.
- Operation and Management Services annual fee increased to $4.5 million.
- Pipeline throughput fee: $0.5266 per barrel (minimum 50,000 bpd).
- Truck rack fee: ~$0.462 per barrel for clean products (minimum 30,000 bpd) and ~$2.52 per barrel for LPGs (minimum 5,000 bpd).
Material Changes and Agreements
The filing reports the closing of the Delaware City Products Pipeline and Truck Rack Acquisition Contribution Agreement on May 14, 2015. This transaction consolidates specific logistics assets into the Partnership. Concurrently, the Partnership executed several amended agreements to govern the relationship between the entities:
- Third Amended and Restated Omnibus Agreement: Updates reimbursement terms and incorporates the new assets.
- Third Amended and Restated Operation and Management Services Agreement: Governs seconded employees and facility usage.
- Pipeline and Terminaling Services Agreements: Ten-year agreements (extendable) establishing minimum throughput commitments and fees for pipeline and truck loading services.
Outlook, Risks, and Contingencies
Debt Covenants: The Indenture for the 6.875% Senior Notes includes customary covenants for non-investment grade debt, limiting the Partnership's ability to make investments, incur additional indebtedness, pay dividends, create liens, sell assets, or merge without restrictions. These covenants are subject to specific limitations and exceptions.
Redemption and Change of Control:
- Issuers may redeem up to 35% of the Notes prior to May 15, 2018, using proceeds from equity offerings at 106.875% of principal.
- Full redemption is permitted on or after May 15, 2018, at specified prices.
- In the event of a change of control, holders may require the Issuers to purchase the Notes at 101% of principal.
Guaranty: PBF LLC provided a limited guarantee of collection for the Notes, obligating payment only after remedies against the Issuers are fully exhausted.
Operational Risk: The Partnership must maintain the assets to handle current operating capacity; failure to do so may result in fee reductions.
Investor Verification Checklist
- Verify the exact terms of the 6.875% Senior Notes Indenture (Exhibit 4.1) regarding covenants and redemption rights.
- Confirm the impact of the $350.0 million debt issuance on the Partnership's leverage ratios and liquidity position.
- Review the minimum throughput commitments (50,000 bpd pipeline, 30,000 bpd clean products, 5,000 bpd LPG) and the financial impact of potential shortfall payments.
- Assess the implications of the increased annual service fees ($4.85 million and $4.5 million) on the Partnership's operating expenses.
- Examine the limited guarantee of collection provided by PBF LLC to understand the seniority of the debt in a default scenario.