US-headed Calumet Specialty Products Partners, L.P. (Calumet), a leading independent producer of specialty hydrocarbon and fuels products has announced a series of strategic transactions in connection with its renewable diesel business. The transactions establish Montana Renewables, LLC (MRL) as an unrestricted pure-play renewables wholly-owned subsidiary of Calumet.
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Headquartered in Indianapolis, Indiana (IN), Calumet currently operates twelve facilities throughout North America. The company’s operations in Montana (MT) now include two fully independent business lines: renewables through Montana Renewables, LLC (MRL), and conventional Canadian crude refining through Calumet Montana Refining LLC (CMR).
MRL has closed on a US$300 million convertible debt investment from funds managed by Oaktree Capital Management, L.P. (Oaktree). MRL has also closed on a US$145 million preferred equity investment by Calumet. Calumet owns 100 percent of the equity of MRL.
We are excited to partner with Calumet to support the development and expansion of its Renewable Diesel business. These Great Falls assets are well-positioned for growth and this transaction establishes Calumet as an innovative player in the important shift toward sustainable energy. We’re proud to support Calumet’s efforts to further the energy transition, said Jared Parker, Managing Director of Oaktree’s Global Opportunities funds.
Poised for success
MRL will complete its in-flight capital projects and is expected to become one of the “most advantaged renewable diesel producers in North America.”
We concluded that a financial partner would allow us the flexibility to separate out the Renewable Diesel business, as a first step to create maximum unitholder value. Once we decided that, the tremendous expertise and creativity of Oaktree made them a natural partner to set up this exciting venture for future options targeting “post-money” alternatives for MRL, said Bruce Fleming EVP Montana Renewables.
Transaction details include:
- MRL has acquired Calumet’s existing high-metallurgy hydrocracker and related assets in Great Falls, Montana (MT);
- MRL has closed a 3-year US$300 million senior secured convertible term loan issued by Oaktree;
- MRL has closed a US$145 million preferred equity investment by Calumet, comprised of US$44 million for Renewable Diesel project capital expenditures to date and US$101 million cash;
- MRL designated as an unrestricted subsidiary of Calumet and will operate with its own Board;
- MRL has entered into a tolling agreement with CMR which is expected to net US$30 million of cash in excess of the cost of service on an annualized basis in return for operating its hydrocracker at Calumet’s direction prior to conversion to renewable production;
- MRL has entered into management services, operating, and other agreements with Calumet to support the continued development and subsequent operation of the Renewable Diesel conversion project;
- MRL signed a US$50 million Letter of Intent (LoI) with Stonebriar Commercial Finance (Stonebriar) to finance a renewable hydrogen plant to maximize renewable diesel production and further reduce the carbon intensity (CI) of MRL products;
- MRL signed an LoI with Macquarie for renewables inventory financing;
- MRL closed on the Oaktree term loan, Calumet preferred equity, and certain related transactions on November 18, 2021. The Stonebriar and Macquarie transactions are expected to close by the first quarter of next year.
Reconfigured Great Falls Specialty Refinery
CMR will continue to own and operate the conventional Great Falls Specialty Refinery with a reconfigured processing capacity of 12 000 barrels per day of Canadian crude. The refinery is focused on the production of high-quality Specialty Asphalt, as well as satisfying local demand for conventional fuels.
CMR anticipates the refinery will generate 60 percent of historical (pre-conversion) adjusted EBITDA after the hydrocracker is separated. Calumet owns 100 percent of the equity of CMR.
As a result of these transactions, Calumet received net cash proceeds of approximately US$199 million and has begun to reduce outstanding debt by issuing a notice of redemption today for the US$80 million outstanding principal amount of its 7.625 percent Senior Notes due 2022.
Cowen and Company, LLC and Intrepid Partners, LLC acted as financial advisors and Gibson, Dunn & Crutcher LLP served as legal advisor to Calumet. Guggenheim Securities acted as financial advisor and Latham & Watkins, LLP served as legal advisor to Oaktree.
We have a clear vision for Calumet, and we have been implementing it through the re-segmentation of our businesses at the beginning of the year and now by standing up arguably the best renewable diesel conversion project in North America. 2021 has been a year of tremendous value creation for our unitholders and we are very pleased to finish the year by forming this partnership at Montana Renewables with Oaktree. These transactions advance Calumet’s vision for MRL as a standalone, high-growth, pure-play renewable fuels business, ended Steve Mawer, CEO, Calumet.