Delek Logistics Partners, LP Announces Pricing of Upsized Offering of $650 Million of Senior Notes

Rhea-AI Summary

Delek Logistics Partners, LP (DK) announced an upsized offering of $650 million in aggregate principal amount of 8.625% senior notes due 2029, with plans to use the proceeds for various purposes including repurchasing existing notes and general corporate uses.

Financial Analyst

The announcement of Delek Logistics Partners, LP's upsized offering of $650 million in senior notes at an interest rate of 8.625% signals a strategic move to restructure its debt profile. The decision to increase the offering from $550 million to $650 million suggests a strong demand from investors or a greater need for capital than initially anticipated. This move is indicative of a proactive approach to managing the company's debt obligations before the maturity of the 6.75% Senior Notes due in 2025.

By repurchasing or redeeming these notes, Delek Logistics is likely aiming to reduce interest expenses and extend the maturity of its debt, which could improve its financial flexibility. The repayment of the term loan facility and potential reduction of the revolving credit facility's outstanding borrowings are also significant, as they may lead to a lower cost of capital and a more streamlined debt structure.

However, the higher interest rate of the new issuance compared to the 2025 Notes could reflect a risk premium demanded by investors, possibly due to the current economic climate or specific company risks. Stakeholders should consider the impact of these factors on the company's long-term interest payments and overall financial health.

Debt Market Analyst

The pricing of Delek Logistics' senior notes offering at par indicates that the yield aligns with market expectations for debt with similar credit risk and maturity. Investors in the debt market will note that the 8.625% interest rate is considerably high in the current market, which could suggest a credit risk premium associated with Delek Logistics or a general rise in market interest rates.

Given the exemption from registration relying on Rule 144A and Regulation S, the notes are targeted towards qualified institutional buyers and non-U.S. persons, which underscores the specialized nature of the investment and the limited liquidity for retail investors. This approach is often taken to expedite the capital-raising process and to cater to investors who are capable of conducting in-depth credit analysis.

It is important for investors to understand that the lack of registration under the Securities Act implies that these notes have limited transferability and cannot be sold to the general public without registration or an applicable exemption. This factor could affect the secondary market liquidity and pricing of the notes.

Corporate Finance Expert

From a corporate finance perspective, the issuance of senior notes by Delek Logistics can be seen as a maneuver to optimize its capital structure. The use of proceeds to address near-term debt maturities and reduce other outstanding borrowings is a common strategy to improve creditworthiness and de-risk the balance sheet.

The choice of funding through the debt market rather than equity financing avoids shareholder dilution, which can be favorable for existing shareholders. However, the increased debt load and higher interest rate could potentially elevate the company's financial risk profile if not managed carefully.

The company's intention to use any remaining proceeds for general corporate purposes provides flexibility for future investments or operational needs, which could be beneficial in navigating uncertain economic conditions or capitalizing on growth opportunities.

BRENTWOOD, Tenn., Feb. 28, 2024 /PRNewswire/ -- Delek Logistics Partners, LP (NYSE: DKL) ("Delek Logistics") announced today that it, along with Delek Logistics Finance Corp., a subsidiary of Delek Logistics, priced an upsized offering of $650 million in aggregate principal amount of 8.625% senior notes due 2029 (the "Notes") at par. The aggregate principal amount of the offering was increased from the previously announced offering size of $550 million.

The offering is expected to close March 13, 2024, subject to satisfaction of customary closing conditions. Delek Logistics intends to use the net proceeds from the offering to (i) repurchase or redeem all of the outstanding 6.75% Senior Notes due 2025 (the "2025 Notes"), (ii) repay in full the outstanding borrowings under Delek Logistics' term loan facility and (iii) pay accrued and unpaid interest, premiums, fees and expenses related to such repurchases, repayments and redemptions. Delek Logistics intends to use any remaining net proceeds for general corporate purposes, which may include the repayment of a portion of the outstanding borrowings under its revolving credit facility.

The Notes are being offered only to persons reasonably believed to be qualified institutional buyers in an offering exempt from registration in reliance on Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and to non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act. The Notes and related guarantees have not been registered under the Securities Act or any state securities laws and may not be offered or sold in the United States without registration or an applicable exemption from the registration requirements of the Securities Act or any applicable state securities laws.

This press release is being issued pursuant to Rule 135c under the Securities Act, and is neither an offer to sell nor a solicitation of an offer to buy the Notes or any other securities and shall not constitute an offer to sell or a solicitation of an offer to buy, or a sale of, the Notes or any other securities in any jurisdiction in which such offer, solicitation or sale is unlawful. This press release does not constitute a notice of redemption under the optional redemption provisions of the indenture governing the 2025 Notes.

About Delek Logistics Partners, LP

Delek Logistics is a midstream energy master limited partnership headquartered in Brentwood, Tennessee. Through its owned assets and joint ventures located primarily in and around the Permian Basin, the Delaware Basin and other select areas in the Gulf Coast region, Delek Logistics provides gathering, pipeline, transportation, and other services for its customers in crude oil, intermediates, refined products, natural gas, storage, wholesale marketing, terminalling water disposal and recycling.

Delek US Holdings, Inc. (NYSE: DK) owns the general partner interest as well as a majority limited partner interest in Delek Logistics and is also a significant customer.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the closing of the offering and the anticipated use of the net proceeds therefrom. These statements may contain words such as "possible," "believe," "should," "could," "would," "predict," "plan," "estimate," "intend," "may," "anticipate," "will," "if," "expect" or similar expressions, as well as statements in the future tense, are made as of the date they were first issued and are based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond Delek Logistics' control. Delek Logistics' actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including, but not limited to, market risks and uncertainties, including those which might affect the offering, and the impact of any natural disasters or public health emergencies. These and other potential risks and uncertainties that could cause actual results to differ from the results predicted are more fully detailed in Delek Logistics' filings and reports with the Securities and Exchange Commission ("SEC"), including the Annual Report on Form 10-K for the year ended December 31, 2023 and other reports and filings with the SEC. 

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SOURCE Delek Logistics Partners, LP

What is the total amount of the senior notes offering announced by Delek Logistics Partners, LP?

Delek Logistics Partners, LP announced an upsized offering of $650 million in aggregate principal amount of senior notes.

When is the expected closing date for the offering?

The offering is expected to close on March 13, 2024, subject to customary closing conditions.

How does Delek Logistics Partners, LP intend to use the net proceeds from the offering?

Delek Logistics intends to use the net proceeds to repurchase or redeem existing 6.75% Senior Notes due 2025, repay outstanding borrowings, and for general corporate purposes.

What type of investors are the Notes being offered to?

The Notes are being offered to qualified institutional buyers under Rule 144A and to non-U.S. persons outside the United States under Regulation S.

Are the Notes and related guarantees registered under the Securities Act?

The Notes and related guarantees have not been registered under the Securities Act or state securities laws and may not be offered or sold in the U.S. without registration or an applicable exemption.