Delek US Announces Agreement to Dropdown Trucking Assets to Delek Logistics

BRENTWOOD, Tenn., May 18, 2020 (GLOBE NEWSWIRE) -- 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 certain trucking assets to Delek Logistics for total consideration of $48 million in cash. The transaction is effective May 1, 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 $8 to $9 million. Approximately 80 – 85% of this EBITDA guidance is supported by a minimum revenue commitment from Delek US. Delek Logistics will finance this dropdown through cash on hand and borrowings from its revolving credit facility (the “Revolver”). Post-closing of this transaction, Delek Logistics will have approximately $107 million available on the Revolver. A reconciliation of forecasted incremental annualized EBITDA to forecasted incremental annualized net income under U.S. GAAP is provided below.

"This acquisition will complement Delek Logistics current trucking operations, adding scale and geographic diversity,” said Uzi Yemin, Chairman, President and Chief Executive Officer of Delek US and Delek Logistics’ general partner. “The trucking assets are currently part of Delek US Tyler, Texas and El Dorado, Arkansas refining operations and further strengthen Delek Logistics’ footprint as we continue to grow. The addition of these assets, along with the recent dropdown of the Big Spring gathering system, provides us with visibility for distribution coverage in the range of 1.4x to 1.5x and a leverage ratio below 4.0x by the end of this year. Once achieved, this should put Delek Logistics in an attractive position in terms of coverage and leverage ratios broadly in line with peers, while simultaneously delivering on our 5% distribution growth target in 2020.”

Asset and other information to consider:

• The trucking assets are comprised of approximately 150 tractors and 150 trailers, which are primarily leased and owned, respectively. The Assets currently transport crude oil, asphalt and other refined products.
  • Prior to the dropdown, Delek Logistics owned or leased 123 tractors and 174 trailers
    
     
• Minimum Revenue Commitment: Delek US, through a 10-year services agreement, will provide a trucking services agreement to Delek Logistics on the trucking assets.

In connection with the closing of the transaction, 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.

About Delek Logistics Partners, LP

Delek 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 252 convenience stores in central and west Texas and New Mexico.

Safe Harbor Provisions Regarding Forward-Looking Statements

This press release contains forward-looking statements that are based upon current expectations and involve a number of risks and uncertainties. Statements concerning current estimates, expectations and projections about future results, performance, expenses, 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. Forward looking statements include, but are not limited to, statements regarding forecasted incremental annualized EBITDA, forecasted incremental annualized net income, projected distribution coverage and leverage ratios, and distribution growth. 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, including uncertainties regarding future decisions by OPEC regarding production and pricing disputes between OPEC members and Russia; uncertainty relating to the impact of the COVID-19 outbreak on demand for crude oil, refined products and transportation and storage services; risks related to Delek’s exposure to Permian Basin crude oil, such as supply, pricing, gathering, production and transportation capacity; 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’s filings with the United States Securities and Exchange Commission (the “SEC”), including risks disclosed in our Annual Report 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.

Non-GAAP Disclosures:

Our management uses certain "non-GAAP" operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our GAAP financial information presented in accordance with U.S. GAAP. These financial and operational non-GAAP measures are important factors in assessing our operating results and profitability and include:

• Earnings before interest, taxes, depreciation and amortization ("EBITDA") - calculated as net income before net interest expense, income tax expense, depreciation and amortization expense, including amortization of customer contract intangible assets, which is included as a component of net revenues in our accompanying condensed consolidated statements of income.

EBITDA is a non-U.S. GAAP supplemental financial measure that management and external users of our condensed consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:

• Delek Logistics' operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA, financing methods;
• Delek Logistics' ability to incur and service debt and fund capital expenditures; and
• the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

Delek Logistics believes that the presentation of EBITDA provides useful information to investors in assessing its financial condition, its results of operations and the cash flow its business is generating. EBITDA should not be considered in isolation or as an alternatives to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP.

Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net income and net cash provided by operating activities. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures. Additionally, because EBITDA may be defined differently by other partnerships in its industry, Delek Logistics' definitions of EBITDA may not be comparable to similarly titled measures of other partnerships, thereby diminishing its utility.  See the accompanying tables in this earnings release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures.

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