Business Context and Reporting Period
Company: Delek Logistics Partners, LP
Filing Type: Form 8-K (Current Report)
Date of Report: March 20, 2018
Event Date: March 20, 2018 (Effective March 1, 2018)
Summary: The Partnership completed the acquisition of logistics assets associated with a refinery near Big Spring, Texas, and a light products distribution terminal in Stephens County, Oklahoma, from affiliates of Delek US Holdings, Inc.
Key Financial Metrics and Transaction Details
- Purchase Price: $315 million in cash, subject to post-closing adjustments.
- Funding Source: Cash on hand and borrowings under the Partnership's amended and restated senior secured revolving credit facility.
- Assets Acquired: Big Spring Logistics Assets and the Duncan Terminal (collectively, "Transferred Assets").
- Related Party Status: The transaction was with Delek US and its subsidiaries. Delek US owns a 62.0% limited partnership interest in the Partnership.
Material Changes and New Agreements
Upon closing, the Partnership entered into long-term service agreements with Alon USA, LP (an indirect subsidiary of Delek US) to operate the acquired assets:
- Pipelines, Storage and Throughput Facilities Agreement:
- Term: 10 years initial, with a one-time 5-year extension option.
- Fees: $0.55 per barrel for storage; $0.05 to $0.66 per barrel for throughput.
- Adjustments: Annual inflation adjustments permitted.
- Big Spring Asphalt Services Agreement:
- Term: 10 years initial, with a one-time 5-year extension option.
- Fees: $1.00 per barrel for storage; $0.40 to $8.30 per barrel for throughput.
- Adjustments: Annual inflation adjustments permitted.
- Marketing Agreement:
- Term: 10 years initial, with a one-time 5-year extension option.
- Fees: $0.50 to $0.71 per barrel for marketing and selling services.
- Adjustments: Annual inflation adjustments permitted.
Guarantees: Delek US guarantees payment obligations under all three agreements. The Buyer (DKL Big Spring, LLC) also became a guarantor under the Partnership's revolving credit facility and executed a supplemental indenture for the Partnership's senior notes.
Guidance, Outlook, and Risks
Management Commentary: The Conflicts Committee of the General Partner's Board of Directors approved the transaction. They 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:
- Performance Obligations: The Buyer is obligated to maintain minimum storage and throughput capacities. Failure to meet these obligations may result in reduced fees payable by Alon USA.
- Volume Obligations: Under the Marketing Agreement, Alon USA must provide minimum volumes for marketing; failure to do so triggers a shortfall payment to the Buyer.
- Related Party Transactions: Significant overlap in management and ownership between the Partnership and the Sellers (Delek US affiliates).
Financial Statements: The filing states that financial statements of the business acquired and pro forma financial information are "Not applicable."
Investor Verification Checklist
- Verify the exact post-closing purchase price adjustments to the $315 million base.
- Review the impact of the new borrowings on the Partnership's leverage ratios and liquidity position.
- Confirm the specific minimum volume and capacity thresholds in the Logistics, Asphalt, and Marketing agreements to assess revenue stability.
- Examine the Supplemental Indenture (Exhibit 4.1) for any new covenants or restrictions imposed by the addition of the Buyer as a guarantor.
- Assess the long-term creditworthiness of Delek US/Alon USA as the primary counterparty for the new service agreements.