Business Context and Reporting Period
This Form 8-K, dated January 12, 2015, reports on SunCoke Energy, Inc. (the "Company") and its affiliates. The filing details the entry into a Material Definitive Agreement to contribute a 75% interest in Gateway Energy & Coke Company, LLC ("Gateway") to SunCoke Energy Partners, L.P. (the "Partnership"). The transaction is expected to close on January 13, 2015. Gateway operates a 120-oven cokemaking facility in Granite City, Illinois, with a capacity of approximately 650,000 tons of coke per year.
Key Financial Metrics and Transaction Details
- Transaction Value: Approximately $245.0 million for the 75% interest in Gateway.
- Consideration: The Partnership will issue approximately $50.6 million of common units and $1.0 million of general partner interests.
- Debt Assumption and Redemption: The Partnership plans to assume and repay approximately $135.0 million principal of the Company's 7.625% senior unsecured notes due 2019. This includes approximately $5.6 million in accrued interest and a $7.7 million redemption premium.
- Financing: The redemption is expected to be funded by net proceeds from a private placement of $200 million of the Partnership's 7.375% Senior Notes due 2020.
- 2014 Preliminary Adjusted EBITDA (Estimated):
- SunCoke Energy Partners (SXCP): $145 million to $151 million.
- Granite City (Gateway): $35 million to $40 million.
- 2014 Preliminary Distributable Cash Flow (SXCP): Estimated between $83 million and $89 million.
- Capital Expenditures (2014 Estimated): SXCP at $17.4 million; Granite City at $3.8 million.
- Coke Production (2014 Estimated): SXCP at 1,746,000 tons; Granite City at 689,000 tons.
Material Changes and Agreements
The primary material change is the "Gateway Transaction," which consolidates the Granite City facility into the Partnership structure. Concurrently, the Company entered into a Third Amendment to the Coke Sales and Feed Water Processing Agreement with United States Steel Corporation ("US Steel"). This agreement runs through 2025 with a five-year renewal option and requires US Steel to purchase substantially all coke produced on a "take-or-pay" basis. The pricing mechanism includes coal costs, operating costs, fixed costs, and taxes. Additionally, the Omnibus Agreement was amended to address indemnification for environmental remediation costs and customer payment failures.
Guidance, Outlook, and Risks
The Company provided preliminary financial estimates for the three months and year ended December 31, 2014, noting that final audited results may differ. The filing includes a cautionary statement regarding forward-looking statements, highlighting risks such as the failure of the Gateway Transaction to close, timing uncertainties, and financing risks. The Company has not completed its customary quarterly close procedures for the periods ended December 31, 2014, and its independent auditors have not reviewed the preliminary data.
Investor Verification Checklist
- Verify the closing of the Gateway Transaction on or about January 13, 2015.
- Confirm the successful private placement of the $200 million 7.375% Senior Notes due 2020 to fund the debt redemption.
- Monitor the final audited financial statements for 2014 to compare against the preliminary Adjusted EBITDA and production estimates provided.
- Review the terms of the amended Coke Sales Agreement with US Steel, specifically the "take-or-pay" provisions and pricing components.
- Assess the potential impact of the $50 million cap on the Company's indemnification liability for unknown environmental remediation costs.