Calumet Lubricants Co. is seeking government authorization to conduct its initial public stock offering in order to pay off high levels of debt run up by several years of expansion. If approved and completed, the sale would allow investors to take a 22.8 percent stake in the company, which would be renamed Calumet Specialty Products Partners L.P.
According to documents submitted to the U.S. Securities and Exchange Commission in October and November, the company wants to continue growing both through acquisitions and investments in its existing facilities.
An independent refiner based in Indianapolis, Calumet is currently owned by Chairman Fred M. Fehsenfeld Jr., President and Chief Executive Officer F. William Grube and their families. It operates three refineries in northwestern Louisiana, including facilities with base oil plants at Shreveport and Princeton. The company also produces fuels, solvents, finished lubricants and waxes.
The company did not make any announcements about its filing, and officials did not return phone calls seeking comment.
According to its filings, Calumet currently owes $313.4 million for borrowings made mostly to acquire the Princeton and Shreveport refineries and for upgrades and expansions of those facilities plus its refinery in Cotton Valley. The cost of that debt is significant and rising. The company pays 14 percent interest on a $40 million loan from one third-party lender. Overall it paid $16.8 million in interest payments during the first nine months of this year, up 155 percent from the same period of 2004.
Calumet said it wants to pay off $119.7 million of that debt by selling 6,450,000 shares of common stock. (It expects a per share price of $22, which would cover the aforementioned debt plus early pay-off penalties and fees associated with the stock offering.)
That would leave $193.7 million in outstanding debt. Calumet said it would pay that off, too, using part of $450 million in new debt that it has already arranged. The remaining funds would be used, the filings said, to support hedging activities the company employs in its purchases of crude oil. The filings did not state any specific plan to use borrowings for additional acquisitions or capital improvements but said both are part of managements general strategy.
The new stock shares would total a 25 percent stake in the company, with units amounting to a 2.2 percent stakereserved for relatives of Fehsenfeld. Calumet said it plans to pay distributions of $1.98 per share per year but that the value of shares will be immediately diluted to $4.84 per unit after the offering.
The SEC filings contain interesting data about Calumets operations. The company recorded sales of $895 million for the nine months ended Sept. 30, an increase of 128 percent from the first nine months of 2004. The improvement was primarily due to the addition of fuel production at Shreveport, which generated $395.9 million in new income. In addition, revenue from lubricating oils – including base oils and finished lubricants – jumped 48 percent to $270.2 million. The increase in revenues from base oils was due to a 29.8 percent jump in average selling price, as volumes dipped from 6.8 million barrels to 6.7 million barrels.
The companys bottom line for the first nine months of 2005 was a loss of $20.8 million, compared to income of $18.8 million over the same period of 2004. In addition to the increase in interest expense, performance was dragged down by $49.2 million in losses on derivative instruments. Management attributed those losses partly to rising crack spreads. Derivative instruments yielded gains of $32.4 million for the first three quarters of 2004.
The Shreveport plant has capacity to make 8,500 barrels per day of paraffinic base oils, according to the National Petrochemical and Refiners Associations 2005 Lubricating Oil and Wax Capacities report. The Princeton plant has capacity to make 8,000 b/d of naphthenic base oils.