Business Context and Reporting Period
Company: Delek Logistics Partners, LP
Filing Type: Form 8-K (Current Report)
Date of Report: February 10, 2014
Event: Completion of a material asset acquisition and entry into related definitive agreements with Lion Oil Company, a wholly-owned subsidiary of Delek US Holdings, Inc. (Delek US).
Key Financial Metrics and Transaction Details
- Acquisition Cost: $95.9 million in cash.
- Financing: Funded via borrowings under the Partnership's amended and restated senior secured revolving credit facility.
- Assets Acquired:
- El Dorado Terminal: Truck loading rack with three bays; capacity of approximately 26,700 barrels per day (bpd). Historical throughput (2012) was approximately 12,649 bpd.
- El Dorado Storage Tanks: 158 tanks with an aggregate shell capacity of approximately 2.5 million barrels.
- Related Party Status: Delek US owns a 60.0% limited partnership interest in the Partnership and controls the General Partner.
Material Changes and Agreements
The filing details the execution of five definitive agreements effective February 10, 2014:
- Asset Purchase Agreement: Transfer of El Dorado Assets (excluding land) for $95.9 million.
- Second Amended and Restated Omnibus Agreement:
- Delek US agreed to reimburse the Partnership for operating expenses and capital expenditures related to regulatory compliance for the acquired tanks for five years.
- Delek US agreed to reimburse non-discretionary maintenance capital expenditures exceeding $4.0 million for the period Feb 2014–Dec 2014.
- Future reimbursement thresholds for non-discretionary maintenance set at $9.8 million annually (2015–2017) and $4.4 million annually (2018–Feb 2019).
- Delek US agreed to indemnify the Partnership for environmental damages related to the storage tanks.
- Annual administrative fee payable to Delek US increased from $3.0 million to $3.3 million.
- El Dorado Throughput and Tankage Agreement:
- Term: Initial 8-year term with two optional 4-year renewals.
- Minimum Commitment: Lion Oil obligated to throughput at least 11,000 bpd of refined products.
- Fees: Throughput fee of $0.50 per barrel; storage fee of approximately $1.3 million per month. Fees are indexed annually for inflation.
- Shortfall Penalty: Lion Oil must pay a shortfall payment for any volume below the minimum commitment.
- El Dorado Lease and Access Agreement: Lease of real property for $100 annually; initial term of 50 years with automatic renewal options.
- El Dorado Site Services Agreement: Lion Oil to provide shared services; initial annual fee of $0.2 million plus reimbursement for direct electricity costs.
Guidance, Outlook, and Risks
- Pro Forma Information: Unaudited pro forma condensed combined consolidated financial statements for the year ended December 31, 2012, and the nine months ended September 30, 2013, are included as Exhibit 99.1.
- Operational Risks: The Partnership is obligated to maintain specific throughput and storage capacities; failure to do so may result in reduced fees.
- Related Party Transactions: The transaction was approved by the Conflicts Committee of the Board of Directors of the General Partner, comprised solely of independent directors.
- Environmental Contingencies: While Delek US has agreed to indemnify the Partnership for environmental damages related to the tanks, the specific duration is tied to API 653 inspection dates.
Investor Verification Checklist
- Review the full text of the Asset Purchase Agreement (Exhibit 10.1) for representations, warranties, and indemnities.
- Examine the Unaudited Pro Forma Financial Statements (Exhibit 99.1) to assess the immediate impact on the Partnership's balance sheet and cash flow.
- Verify the specific terms of the environmental indemnity and the definition of "applicable tank's API 653 inspection date."
- Monitor the Partnership's credit facility usage following the $95.9 million drawdown.
- Confirm the calculation methodology for the inflation indexing of throughput and storage fees.