Business Context and Reporting Period
Company: Delek Logistics Partners, LP
Filing Type: Form 8-K (Current Report)
Date of Report: March 31, 2015
Reporting Period: Events occurring on March 31, 2015
This filing reports the completion of two material asset acquisitions from affiliates of Delek US Holdings, Inc. ("Delek US"), the parent company. The transactions involve the acquisition of a rail offloading facility in El Dorado, Arkansas, and storage assets in Tyler, Texas.
Key Financial Metrics and Transaction Details
El Dorado Transaction (Item 1.01 & 2.01):
- Assets Acquired: Two crude oil offloading racks (El Dorado Assets) capable of receiving up to 25,000 barrels per day (bpd) of light crude or 12,000 bpd of heavy crude.
- Purchase Price: $42.5 million.
- Financing: Paid with cash on hand and borrowings under the Partnership's senior secured revolving credit facility.
- Related Agreements:
- Throughput Agreement: Nine-year initial term with two optional three-year renewals. Minimum quarterly payment of $1,482,813. Fees indexed annually for inflation ($1.00/bbl light crude; $2.25/bbl heavy crude).
- Lease: OpCo leases the real property from Lion Oil Company.
Tyler Transaction (Item 8.01):
- Assets Acquired: Storage tank and ancillary assets (Tyler Assets) adjacent to the Tyler, Texas refinery.
- Purchase Price: $19.4 million.
- Financing: Paid with cash on hand and borrowings under the Partnership's senior secured revolving credit facility.
Other Financial Metrics: The filing text does not provide specific values for revenue, profit, cash flow, margins, or total debt levels for the reporting period. It only specifies the funding sources for these specific transactions.
Material Changes and Related Party Transactions
The primary material change is the expansion of the Partnership's asset base through the acquisition of the El Dorado and Tyler assets. Both transactions are related-party transactions as the sellers (Lion Oil Company, Lion Oil Trading & Transportation, LLC, and Delek Refining, Ltd.) are wholly-owned subsidiaries of Delek US, which owns a 59.9% limited partnership interest in Delek Logistics Partners, LP.
The Partnership also entered into a Third Amended and Restated Omnibus Agreement with Delek US and its affiliates. This agreement updates administrative fees to reflect inflationary increases and incorporates the newly acquired assets into the existing contractual framework.
Guidance, Outlook, and Risks
Management Commentary: The Conflicts Committee of the Board of Directors of the General Partner, comprised solely of independent directors, approved the transactions. The Committee relied on an opinion from an independent financial advisor stating that the consideration paid was fair to the Partnership and its unaffiliated unitholders from a financial point of view.
Risks and Contingencies:
- Throughput Obligations: Under the El Dorado Throughput Agreement, OpCo is obligated to maintain certain offloading capacities. Failure to meet these obligations may result in a reduction of fees payable.
- Related Party Dependence: The Partnership maintains significant commercial relationships with Delek US and its subsidiaries, creating potential conflicts of interest managed through the Conflicts Committee.
Investor Verification Checklist
- Verify the terms of the Throughput Agreement (Exhibit 10.2) regarding the minimum quarterly payment guarantee and capacity maintenance obligations.
- Review the Third Amended and Restated Omnibus Agreement (Exhibit 10.3) to understand the updated administrative fee structure and environmental provisions.
- Confirm the impact of the $61.9 million total acquisition cost ($42.5M + $19.4M) on the Partnership's liquidity and leverage ratios in subsequent quarterly reports.
- Assess the utilization rates of the new El Dorado rail offloading facility to ensure the minimum throughput fees are being met or exceeded.