Delek US Announces Agreement to Dropdown Logistic Assets to Delek Logistics
March 31 2020 - 5:22PM
Delek US Holdings, Inc. (NYSE: DK) (“Delek US”) and Delek Logistics
Partners, LP (NYSE: DKL) (“Delek Logistics”) today announced an
agreement for the dropdown of the Big Spring gathering system to
Delek Logistics for total consideration of $100 million in cash and
5.0 million common units representing limited partnership interest
in Delek Logistics. The transaction is effective March 31, 2020,
and is expected to be immediately accretive to Delek Logistics'
distributable cash flow per unit.
These assets and services are projected to
generate incremental annual earnings before interest, taxes,
depreciation and amortization (EBITDA) of approximately $30 to $32
million. Delek Logistics will finance the cash component of this
dropdown through a combination of cash on hand and borrowings on
the revolving credit facility.
"This adds the next step in growth for Delek
Logistics,” said Uzi Yemin, Chairman, President and Chief Executive
Officer of Delek US and Delek Logistics. “The Big Spring Gathering
System is an integral piece of our expanding midstream footprint,
which positions us uniquely among refiners with access to crude, in
excess of our refining capabilities. Additionally, getting closer
to the wellhead allows us to control crude quality and cost,
providing improvement in our refining performance and cost
structure.”
Asset and other information to consider:
- The Big Spring Gathering System is an approximately 200-mile
crude oil gathering system with approximately 350,000 barrels per
day throughput capacity located in Howard, Borden and Martin
Counties, Texas and connecting to the Delek US terminal
located near Big Spring, Texas and to a third party pipeline
system.
- Minimum Volume Commitments: 120,000 barrels per day for
the Big Spring Gathering System in addition to 50,000 barrels per
day connection to a third party pipeline system.
- Limited IDR Waiver: Delek US will waive the incentive
distribution rights (“IDRs”) associated with the equity
consideration. This IDR waiver will automatically and permanently
expire following the payment of distributions in respect of any
period of four consecutive quarters ending on or after March 31,
2022, in which Delek Logistics has generated distributable cash
flow resulting in total distribution coverage (on a pro forma basis
without giving effect to the IDR wavier) of at least 1.1x over such
period. In addition, in any sale or exchange of the IDRs to or with
Delek Logistics (for example, an IDR simplification), the valuation
of the IDRs in such transaction shall treat the IDR waiver as
though it remained in effect in perpetuity even after the
expiration.
- Future Capital Expenditures: Delek Logistics agrees to make up
to $33.8 million of additional capital expenditures, if requested
by Delek US. In connection with any such request by Delek US, upon
completion of any such capital project, the minimum volume
commitments in the Throughput and Deficiency Agreement (the
“T&D Agreement”) will be increased in order to provide Delek
Logistics a 12.5% return on the associated capital
expenditures.
In connection with the closing of the
transaction, Delek US, Delek Logistics and various
of their subsidiaries entered into various long-term agreements for
these assets. The transaction and related agreements were approved
by the Conflicts Committee of Delek Logistics’ general partner,
which is comprised solely of independent directors. The Conflicts
Committee engaged Baird to act as its financial advisor
and Gibson Dunn & Crutcher L.L.P. to act as its legal
counsel. Delek US engaged Baker Botts L.L.P. to act as its legal
counsel.
Reconciliation of Forecasted Incremental Annualized Net
Income to Forecasted Incremental Annualized EBITDA for the Big
Spring Gathering System |
|
|
($ in millions) |
|
|
|
|
|
|
Forecasted Range |
|
Forecasted Incremental
Annualized Net Income |
|
$13.3 |
$15.3 |
|
Add Forecasted Incremental
Amounts for: |
|
|
|
Depreciation and
amortization |
|
$13.2 |
$13.2 |
|
Interest expense, net |
|
$3.5 |
$3.5 |
|
Forecasted Incremental
EBITDA |
|
$30.0 |
$32.0 |
|
About Delek Logistics Partners,
LPDelek Logistics Partners, LP, headquartered in
Brentwood, Tennessee, was formed by Delek US Holdings, Inc. (NYSE:
DK) to own, operate, acquire and construct crude oil and refined
products logistics and marketing assets.
About Delek US Holdings,
Inc.Delek US Holdings, Inc. is a diversified downstream
energy company with assets in petroleum refining, logistics,
asphalt, renewable fuels and convenience store retailing. The
refining assets consist of refineries operated in Tyler and Big
Spring, Texas, El Dorado, Arkansas and Krotz Springs, Louisiana
with a combined nameplate crude throughput capacity of 302,000
barrels per day.
The logistics operations consist of Delek
Logistics. Delek US and its affiliates also own approximately 71
percent (including the 2 percent general partner interest) of Delek
Logistics. Delek Logistics is a growth-oriented master limited
partnership focused on owning and operating midstream energy
infrastructure assets.
The convenience store retail business operates
approximately 258 convenience stores in central and west Texas and
New Mexico.
Safe Harbor Provisions Regarding
Forward-Looking StatementsThis press release contains
forward-looking statements that are based upon current expectations
and involve a number of risks and uncertainties. Projected
distributable cash flow, forecasted annualized EBITDA, forecasted
annualized net income and other statements concerning current
estimates, expectations and projections about future results,
performance, prospects, opportunities, plans, actions and events
and other statements, concerns, or matters that are not historical
facts are “forward-looking statements,” as that term is defined
under the federal securities laws. Investors are cautioned that the
following important factors, among others, may affect these
forward-looking statements: risks and uncertainties with respect to
the quantities and costs of crude oil we are able to obtain and the
price of the refined petroleum products we ultimately sell; risks
related to exposure to Permian Basin crude oil, such as supply,
pricing, gathering, production and transportation capacity; risks
and uncertainties related to the effects of the COVID-19 pandemic;
gains and losses from derivative instruments; management's ability
to execute its strategy of growth, including risks associated with
acquisitions and dispositions; our competitive position and the
effects of competition; the projected growth of the industries in
which we operate; general economic and business conditions
affecting the geographic areas in which we operate; and other risks
described in Delek US”s and Delek Logistics’ filings with the
United States Securities and Exchange Commission (the “SEC”),
including risks disclosed in their respective Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and other filings and
reports with the SEC.
Forward-looking information is based on
information available at the time and/or management's good faith
belief with respect to future events, and is subject to risks and
uncertainties that could cause actual results to differ materially
from those expressed in the statements. Neither Delek US nor Delek
Logistics undertakes any obligation to update or revise any such
forward-looking statements to reflect events or circumstances that
occur, or which they become aware of, after the date hereof, except
as required by applicable law or regulation.
Investor Relations
Contacts:Blake Fernandez, Senior Vice President of
Investor Relations and Market Intelligence, 615-224-1312
Media/Public Affairs
Contact:Michael P. Ralsky, Vice President - Government
Affairs, Public Affairs & Communications, 615-435-1407
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