Business Context and Reporting Period
This Form 8-K Current Report, dated September 30, 2014, details the completion of a material asset contribution and the entry into several definitive agreements by PBF Energy Inc. and its subsidiaries. The primary transaction involves the contribution of the Delaware City heavy crude unloading rack (West Rack Assets) from PBF Energy Company LLC to PBF Logistics LP.
Key Financial Metrics and Transaction Details
- Total Consideration: $150 million paid by PBF Logistics LP to PBF Energy Company LLC.
- Payment Structure: $135 million in cash and $15 million in Partnership common units (589,536 units).
- Funding Sources: Cash funded via the sale of $30 million in marketable securities and $105 million in borrowings under the Partnership's revolving credit facility.
- Debt Adjustments: An additional $30 million was borrowed under the revolving credit facility to repay an outstanding term loan, releasing $30 million in collateralized marketable securities.
- Ownership Interest: Following the transaction, PBF Energy owns 663,589 common units and 15,886,553 subordinated units, representing a 51.1% limited partner interest in the Partnership.
Material Changes and New Agreements
The filing reports the execution of three key agreements effective September 30, 2014, and October 1, 2014:
- Amended and Restated Omnibus Agreement: Clarifies reimbursement terms and increases the annual administrative fee payable by the Partnership to PBF Energy from $2.3 million to $2.5 million.
- Amended and Restated Operation and Management Services Agreement: Governs seconded employees and facility usage. The annual fee increased from $490,000 to $797,000 due to the inclusion of West Rack Assets. Fees are indexed for inflation.
- West Ladder Rack Terminaling Services Agreement: A seven-year agreement (with two optional five-year extensions) for rail terminaling services. PBF Holding committed to a minimum throughput of 40,000 barrels per day (bpd).
Outlook, Risks, and Contractual Obligations
The new terminaling agreement establishes specific throughput obligations and fee structures:
- Throughput Commitment: Minimum of 40,000 bpd.
- Fee Structure: $2.20 per barrel for volumes up to the minimum commitment; $1.50 per barrel for excess volumes.
- Capacity Risk: If the Partnership fails to maintain capacity for more than seven days per quarter, PBF Holding's throughput commitments are reduced proportionately.
- Related Party Transactions: The filing notes that officers and directors of PBF Energy serve in leadership roles across the transacting entities, highlighting related party governance considerations.
Investor Verification Checklist
- Verify the impact of the $135 million cash outflow and $135 million in new borrowings on the Partnership's liquidity and leverage ratios.
- Confirm the valuation of the 589,536 common units issued as part of the consideration.
- Review the full text of the West Ladder Rack Terminaling Agreement to assess the enforceability of the 40,000 bpd minimum throughput commitment.
- Monitor the inflation indexing mechanism in the Operation and Management Services Agreement for future fee escalations.
- Assess the related party nature of the transactions and the potential for conflicts of interest given the overlapping management.