Calumet is a Refining Company Transitioning to a Specialty Chemical Company.
As part of this transition, Calumet is deleveraging itself. This deleveraging process is about 90% complete.
Published October 12, 2019 by Thomas Linzmeier, editor LivingofftheMarket.com
CLMT is a major commitment for accounts related to LOTM. A turn around “has happened” in what was a heavily in debit and inefficient operating company. This accomplishment is unrecognized by the market.
- Since the management team came on board in early 2016, long term debt has been reduced from about $2.3 billion to about $1.15 billion with the financing just completed as detailed below.
- Annual cash flow, though variable, can reach $180 to $200 million following this refinancing. Annual revenue is about $3.5 billion.
- The market has not recognized the work done in this turnaround. With the refinancing, CLMT increases its cash flow by another $18 million annually and reduces its total debt by about $160 million.
- The refinancing removes a perception that the company is under pressure to sell assets to meet the maturity date of the notes just retired. Basically, this means that the company can look for higher prices of the assets it intends to sell without a sell-by date to fight against.
Here is what is important to understand.
THE NEGATIVE!
Institutional or individual investors have very little interest in owning a Master Limited partnership that does not pay a dividend. Therefore, there is no near catalyst to drive share price higher other than “it is a good deal”.
OPPORTUNITY – LAST ACT of the PLAY!
Management has set the stage for a major price increase opportunity. The turnaround is effectively complete. The company generates close to $200 million in free cash flow. They will rebuild cash on hand and continue to reduce debt from free cash flows. “WHEN”, CLMT sells assets (two and possibly three of five refineries are earmarked for sale) they can reduce long term debt by an estimated $500 to $600 million dollars. When this happens, cash flows would enable them to pay a dividend. The potential “size” of the dividend is important. With the cash flows CLMT will have, the dividend could be in the $1.50 to $2.00 per share range. At a 10% payout valuation that converts to a $15 to $20 stock price. The current share price is $3.55.
TIMING of an ASSET SALE:
Unknowable at this time. It could happen in the next six months to three years. It is highly probable this will happen before the 2025 maturity of the just issued notes.
RISK to the OPPORTUNITY:
There is a major opportunity for owners of CLMT, but not without a risk to this opportunity. A venture capital firm “could”, buy out CLMT shares in the next three to eighteen months, taking the company private. In three to five years, the VC firm could initiate a dividend and bring the company public at a much higher price than the buy-out price. In this possible path, the VC firm makes the money we are writing about here. Or they could keep the operations and milk the cash flow which would be substantial. If this drama path plays out, we’d make money from today’s price. I am guessing a $6.00 to $7.00 take out value, but we would miss out on the much bigger opportunity.
SHORT-TERM
At the current valuation and operations, there seems to be low “Company Risk” in CLMT. Market Risk is always an unknown, so it is very important to understand the difference between Company Risk and Market Risk. A drop in the share price, due to Market Risk (volatility), is an opportunity to buy CLMT at an even more attractive price.
We are very positive on the opportunity in CLMT and impressed with management’s ability to turn this company around.
NEWS:
Calumet Specialty Products refinances 2021 notes and significantly reduces total debt outstanding
INDIANAPOLIS, Oct. 11, 2019 /PRNewswire/ — Calumet Specialty Products Partners, L.P. (NASDAQ: CLMT) (the “Company”, “Partnership” or “Calumet”), a leading independent producer of specialty hydrocarbon and fuels products, today announced that it has successfully completed a $550 million offering of new senior unsecured notes maturing in 2025 (the “Offering”).
Transaction Highlights:
— Completes effort to address original $900 million of notes maturing in
2021, with
— Net proceeds of the Offering plus borrowings under
hand to be used to redeem all existing senior notes due 2021
— Estimated annual interest expense of approximately $138 million based on
current capital structure is significantly lower than the approximately
$156 million of interest expense reported in 2018
— Issuing the new notes in the unsecured market provides optionality to
address 2022 and 2023 maturities with free cash flow, asset sales, or
refinancing, and preserves current credit ratings, enabling access to
improved trade credit
View complete & original content: http://www.prnewswire.com/news-releases/calumet-specialty-products-partners-lp-announces-closing-of-550-million-offering-of-senior-unsecured-notes-due-2025-300937352.html
SOURCE Calumet Specialty Products Partners, L.P.
/CONTACT: For further information: Investor/Media Inquiry Contact: Alpha IR Group, Joe Caminiti or Chris Hodges, Phone: 312-445-2870, CLMT@alpha-ir.com/Web site: http://www.calumetspecialty.com
* An account related to LOTM holds a position in this security. Neither LOTM nor Tom Linzmeier is a Registered Investment Advisor.
Please refer to our web site for full disclosure at www.LivingOffTheMarket
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Attn: Thomas Linzmeier
339 Summit Ave, Suite 4,
Saint Paul, MN 55102
