PBF Energy Inc. current report, 31 August 2016

Full document

Business Context and Reporting Period

This Form 8-K Current Report, dated August 31, 2016, details a material transaction involving PBF Energy Inc. and its consolidated subsidiary, PBF Logistics LP (the "Partnership"). The report focuses on the acquisition of assets and the entry into several material definitive agreements executed on August 31, 2016, and closed on September 1, 2016.

Key Financial Metrics and Transaction Details

  • Transaction Consideration: The Partnership paid $175.0 million in cash to acquire 50% of the issued and outstanding interests of Torrance Valley Pipeline Company LLC ("TVPC").
  • Funding Sources: The acquisition was funded through cash on hand, borrowings under the Partnership's revolving credit facility, and proceeds from a public offering of common units completed in August 2016.
  • Asset Scope: The acquired assets include the 189-mile San Joaquin Valley Pipeline system (SJV System) with a throughput capacity of approximately 110,000 barrels per day (bpd), 11 pipeline stations, and approximately one million barrels of combined tankage.
  • Recurring Fee Increases:
    • Omnibus Agreement: Annual fee payable by the Partnership to PBF Energy increased from $4.8 million to $5.7 million.
    • Services Agreement: Annual fee payable by the Partnership increased from $4.5 million to $6.4 million.

Material Changes and New Agreements

The filing reports the completion of the acquisition of the SJV System and the execution of four primary agreements:

  1. Contribution Agreement: Transferred 50% of TVPC interests to the Partnership.
  2. Fourth Amended and Restated Omnibus Agreement: Updated reimbursement structures and incorporated the SJV System, with fees indexed for inflation.
  3. Fourth Amended and Restated Operation and Management Services Agreement: Governed seconded employees and facility use, incorporating the SJV System with increased annual fees indexed for inflation.
  4. Transportation Services Agreement: A ten-year agreement (extendable by two additional five-year periods) under which the Partnership provides transportation and storage to PBF Holding. Key terms include:
    • Transportation Fees: Northern portion minimum commitment of 50,000 bpd at $0.5625/barrel; Southern portion minimum commitment of 70,000 bpd at $1.5625/barrel.
    • Storage Fees: Fixed rate of $0.85/barrel for shell capacity at Midway, Belridge, and Emidio tanks. Excess throughput rates apply at $0.425/barrel subject to minimum incremental throughput commitments.
    • Shortfall Provisions: PBF Holding must pay shortfall payments if minimum throughput commitments are not met, though credits may be applied against future excess fees for storage shortfalls.

Guidance, Risks, and Contingencies

The filing does not provide specific financial guidance or outlook for the reporting period. However, it highlights the following risks and contingencies:

  • Representations and Warranties: The filing explicitly states that representations and warranties in the agreements are for the benefit of the parties, may use different materiality standards than those for investors, and were made only as of the agreement date. Investors are urged not to rely on them as current statements of fact.
  • Operational Obligations: The Partnership is required to maintain the SJV System in a condition sufficient to handle PBF Holding's crude volumes. Failure to meet these obligations may result in reduced fees.
  • Fee Adjustments: All fees under the Omnibus and Services agreements are indexed for inflation, introducing variability in future costs.

Investor Verification Checklist

  • Verify the impact of the $175.0 million cash outflow on the Partnership's liquidity and debt covenants.
  • Review the full text of the Transportation Services Agreement (Exhibits 10.3-10.7) to understand the specific mechanics of shortfall payments and credit applications.
  • Assess the long-term financial impact of the increased annual fees ($5.7 million and $6.4 million) and their inflation indexing.
  • Confirm the operational capacity of the SJV System relative to the minimum throughput commitments required by PBF Holding.
  • Examine the terms of the revolving credit facility used to fund the acquisition for any new restrictions or interest rate implications.