IPO Preview: Alon USA Partners, LP

| About: Alon USA (ALDW)
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Based in Dallas, TX, Alon USA Partners, LP (NYSE:ALDW) scheduled a $200 million IPO with a market capitalization of $1.25 billion for Tuesday, November 20, 2012.

S-1 filed November 9, 2012.


ALDW operates a 70,000 oil barrels per day refinery, and also runs an oil distribution business.

Unlike many LP's, ALDW has no subordinated units, cash distributions are expected to vary, and there is no target minimum.

However, the expected payout for the 12 months ending September 2013 is $5.20, which is an annual rate of 26%. But the refinery is scheduled for a maintenance shut down in the March 2014 quarter, which could result in a substantial hit to the payout rate in 2014.

Refinery capacity exceeds refined product demand with finished petroleum products consumed in ALDW' PADD III region totaling 3.5 million bpd, causing refiners in PADD III to supply all other PADDs.

Estimated cash for distribution

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Glossary of IPO Analysis terms


IPOdesktop is neutral on ALDW. It does have an expectation of a generous cash distribution in 2013, but 2014's payout will be less based on the expected maintenance shut down in Q1 of 2014.


Alon USA Energy (NYSE:ALJ), $809 million market cap, is an independent refiner and marketer of petroleum products operating primarily in the South Central, Southwestern and Western regions of the United States.

Following this IPO, Alon Energy will own 100% of the voting interests in ALDW's general partner and 84.0% of the common units


Within 60 days after the end of each quarter, beginning with the quarter ending December 31, 2012, ALDW expects to make distributions to unit holders of record on the applicable record date.

ALDW expects its first distribution will include available cash for the period from the closing of the IPO through December 31, 2012.


ALDW's business performance is expected to be volatile, and cash flows are expected to be less stable than the business performance and cash flows of most publicly traded partnerships.

As a result, quarterly cash distributions are expected to vary quarterly and annually.

Unlike most publicly traded partnerships, ALDW will not have a minimum quarterly distribution or employ structures intended to consistently maintain or increase distributions over time.

Furthermore, none of ALDW's limited partnership interests, including those indirectly held by Alon Energy, will be subordinate in right of distribution payment to the common units sold in this IPO.


ALDW is a Delaware limited partnership formed in August 2012 by Alon USA Energy, Inc. (ALJ), - $809 million market cap - to own, operate and grow a strategically located refining and petroleum products marketing business.

Retail distribution

As of September 30, 2012, Alon Energy (the parent) operated 299 convenience stores in Central and West Texas and New Mexico, substantially all of which are branded 7-Eleven and all of which ALDW supplies. In connection with this IPO, ALDW will also enter into a 20-year fuel supply agreement with Alon Energy under which ALDW will supply substantially all of the motor fuel requirements of Alon Energy's retail convenience stores


ALDW's integrated downstream business operates primarily in the South Central and Southwestern regions of the United States. ALDW owns and operate a crude oil refinery in Big Spring, Texas with total throughput capacity of approximately 70,000 barrels per day ("bpd"), the Big Spring refinery.

ALDW refines crude oil into finished products, which is marketed primarily in West Texas, Central Texas, Oklahoma, New Mexico and Arizona through a wholesale distribution network, to both Alon Energy's retail convenience stores and other third-party distributors.

ALDW sells refined products from the Big Spring refinery in both the wholesale rack and bulk markets. The marketing focus of transportation fuels produced at the Big Spring refinery is on portions of Texas, Oklahoma, New Mexico and Arizona through ALDW's physically integrated refining and distribution system.

ALDW distributes fuel products through a product pipeline and terminal network of seven pipelines totaling approximately 840 miles and five terminals that ALDW owns or accesses through leases or long-term throughput agreements.


The refinery is expected to be shut down for a portion of the first quarter of 2014 to complete a turnaround for routine and normally scheduled maintenance.


For the year ended December 31, 2011 and the nine months ended September 30, 2012, the Big Spring refinery maintained a utilization rate of 90.8% and 97.3%, respectively.


Capacity Exceeds Demand

The Big Spring refinery is located in the Gulf Coast region of the United States, which is included in the Petroleum Administration for Defense District III, or "PADD III."

According to the U.S. Energy Information Administration ("EIA"), total demand for refined products in PADD III has represented 20.9% of total U.S. refined products demand from 2007 to 2011.

Total refiner capacity for PADD III in May 2012 was 8.7 million bpd with total throughput at 8.2 million bpd, representing a refinery utilization rate of approximately 93.8%.

Refinery capacity exceeds refined product demand with finished petroleum products consumed in the

region totaling 3.5 million bpd, causing refiners in PADD III to supply all other PADDs.

Despite this high level of refining capacity relative to the refined product demand, refiners who can access advantageous crude supplies are still able to achieve high margins.


After the IPO the parent Alon Energy will own an aggregate of 84.0% of common units

Subordinated units: None.

Incentive Distribution Rights: None.

Issuance of additional units: the partnership agreement authorizes ALDW to issue an unlimited number of additional units without the approval of unitholders.


ALDW estimates that if you own the common units you purchase in this offering through December 31, 2015, you will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be approximately 50% of the cash distributed to you


ALDW expects to net $183 million from its IPO.

Proceeds are allocated to repay $183.0 million of principal and accrued interest outstanding as of September 30, 2012 relating to intercompany debt payable by ALDW subsidiaries to Alon Energy and its affiliates.

ALDW expects that the remaining balance of the intercompany debt will be eliminated prior to closing.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.