Business Context and Reporting Period
This Form 8-K Current Report was filed by PBF Energy Inc. and its subsidiaries on February 13, 2019. The filing details the entry into material definitive agreements regarding the restructuring of incentive distribution rights (IDRs) and the amendment of terminaling services contracts.
Key Financial Metrics and Agreements
The filing does not provide specific revenue, profit, cash flow, or debt figures. Instead, it outlines the following material financial arrangements:
- IDR Restructuring: PBF Logistics LP (PBFX) agreed to convert IDRs held by PBF Energy Company LLC into 10,000,000 newly issued PBFX common units. Upon closing, the IDRs will cease to exist.
- Ownership Structure: Prior to the restructuring, PBF LLC held a 44.0% limited partner interest in PBFX, with public unitholders holding the remaining 56.0%.
- Terminaling Services: A new Terminaling Services Agreement establishes a Minimum Volume Commitment (MVC) of 95,000 barrels per day for PBF Holding Company LLC.
- Fee Structure: Throughput fees are subject to annual inflation adjustments correlated to the Producer Price Index, commencing January 1, 2020.
Material Changes Versus Prior Period
The filing reports the following material changes effective February 13, 2019:
- Capital Structure Change: The conversion of IDRs to common units will alter the economic interest distribution between PBF LLC and public unitholders in PBFX.
- Contractual Scope Expansion: The Amended and Restated Rail Terminaling Services Agreement was updated to include services through certain rail terminal assets of CPI Operations LLC, which now count toward the MVC.
- Agreement Consolidation: A new Terminaling Services Agreement replaces the previous Amended and Restated Rail Terminaling Agreement and the Delaware City West Ladder Rack Transportation Agreement upon their expiration.
Outlook, Risks, and Contingencies
Closing Date: The IDR Restructuring is expected to close on February 28, 2019.
Term and Extension: The new Terminaling Services Agreement has an initial term of four years, with the option for PBF Holding to extend for two additional five-year periods.
Risks and Contingencies:
- Shortfall Payments: If PBF Holding fails to meet the 95,000 barrels per day MVC, it must pay a shortfall payment calculated as the shortfall volume multiplied by the terminaling fee.
- Performance Obligations: PBFX must maintain rail assets in a condition to meet minimum throughput commitments. Failure to do so (excluding routine maintenance or force majeure) may result in reduced fees.
- Representations and Warranties: The filing notes that representations in the agreements are for risk allocation between parties and may not reflect the actual state of facts for investors.
Key Facts for Investor Verification
- Verify the exact closing date of the IDR Restructuring (expected February 28, 2019) and the final issuance of 10,000,000 PBFX common units.
- Confirm the impact of the IDR conversion on the consolidated financial statements and earnings per share of PBF Energy Inc.
- Review the full text of the Terminaling Services Agreement (Exhibit 10.3) to understand specific fee calculations and force majeure definitions.
- Monitor PBF Holding's ability to meet the 95,000 barrels per day MVC to avoid shortfall payments.
- Check for any subsequent filings regarding the integration of CPI Operations LLC assets into the terminaling agreement.