IPO Preview: PBF Energy

| About: PBF Energy (PBF)
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Based in Parsippany, NJ, PBF Energy (NYSE:PBF) scheduled a $429 million IPO with a market capitalization of $2.5 billion at a price range mid-point of $26, for Thursday, December 13, 2012.

Five other IPOs Scheduled For Week Of December 10th. The full IPO calendar is available here.

PBF S-1 filed December 3, 2012

Manager, Joint Managers: Citigroup; Morgan Stanley; Credit Suisse; Deutsche Bank Securities. Co Managers: UBS; Barclays; Wells Fargo.


PBR is a liquidity event for Blackstone (NYSE:BX) and First Reserve, which own equal shares amounting to 95% pre-IPO, and will walk away with $390 million.

PBF has no real ownership in the refining enterprises. The only assets the public owns will be shares that may receive dividends. PBF LLC is the actual operating entity. According to the income statement in the S-1, PBR has a 'call' on only 11.3% of PBF LLC's earnings.

IPOdesktop believes that PBF LLC should be the entity going public, and doesn't see the investor advantage of the PBR subterfuge entity standing between the public shareholders and the operating entity, PB LLC.


According to the S-1 page 49 (dilution) public owners will pay $26 per share, giving the private equity sponsors a 160% profit. The private equity owners have an average cost of $10 and an average holding period of two years. But underlying that calculation are accounting assumptions that apparently are not specified in the S-1 filing.

At the price range mid-point of $26 per share, PBF is valued at $2.5 billion. So the operating entity PBF LLC itself would then be valued at $22 billion, because PBF's $2.5 billion valuation represents 11.3% of earnings.


PBF intends to pay quarterly cash dividends of $0.20 per share on Class A common stock following this offering, commencing after the completion of the first quarter of 2013. A $0.20 per quarter cash dividend would be $76.5 million annually.

That's a 3.1% annualized return at the price range mid-point of $26.


There is a scarcity of public refineries making money, which should attract IPO investor interest. However, there is no growth plan other than market growth. IPOdesktop is neutral, but doesn't see much risk in PFB on the IPO.


The operating entity PBF LLC. (not PBF) acquired three refineries in the past three years, and invested $500 million in upgrades and maintenance.

The operating entity currently operates three refineries with a combined crude throughput of 540,000 bpd making it the fifth largest independent refiner in the United States.

PBF LLC refineries provide diversification through crude slates, end products, customers and geographic locations. PBF LLC's scale provides buying power advantages, and PBR LLC benefits from the cost efficiencies that result from operating three large refineries


June 2010: The idle Delaware City refinery and its related assets were acquired from Valero Energy Corporation, or Valero (NYSE:VLO), for $220.0 million. $500 million was subsequently invested in maintenance and upgrades.

December 2010: The Paulsboro refinery was acquired from Valero for $357.7 million, excluding working capital.

March 2011: The Toledo refinery was acquired from Sunoco for $400.0 million, excluding working capital.

October 2011: Delaware City became operational.

Replacement cost

The estimated replacement cost, according to PBF, for the three refineries is $8.2 billion.


For the nine months ended September 30, 2012, the total throughput rates at the Paulsboro, Toledo, and Delaware City refineries averaged 155,000 bpd, 147,400 bpd, and 161,500 bpd, respectively.

For the nine months ended September 30, 2012, the total barrels sold at our Paulsboro, Toledo, and Delaware City refineries averaged 148,000 bpd, 154,200 bpd, and 154,100 bpd, respectively.

During the nine months ended September 30, 2012, all three refineries were operating, although the Toledo refinery was impacted by a thirty day turnaround of its hydrocracker, reformer and UDEX units which commenced on March 9, 2012.

Results for the nine months ended September 30, 2012 were favorably impacted by improved crack spreads despite the narrowing of the light/heavy crude differential.


Supply and demand dynamics can vary by region, creating differentiated margin opportunities at any given time for refiners depending on the location of their facilities.

PBF LLC's Toledo refinery is located in the Midcontinent (PADD 2) and the Delaware City and Paulsboro refineries are both located on the East Coast (PADD 1). In both of these regions, product demand exceeds refinery capacity.

PBF expects that this demand/capacity imbalance may continue. For example, since 2009 16 refineries representing 2.6 million bpd of refining capacity have been closed or idled in the Atlantic Basin (which includes PADD 1).

This Atlantic Basin reduction has occurred across the United States, Europe and the Caribbean and directly affects PBF LLC's East Coast refineries because PBR LLC competes with operating refineries in these markets. In addition, the supply reduction provides opportunities to export products to markets formerly served by refineries that are now closed or idled outside of the United States.


Refining is primarily a margin-based business where both the feedstock (primarily crude oil) and refined petroleum products are commodities with fluctuating prices.

Refiners create value by selling refined petroleum products at prices higher than the costs of acquiring crude oil and other feedstocks, and by managing operating costs. Refining is an industry that historically has seasonal influences as a result of differentiated consumer demand for key refined products during certain months of the year.


Demand for gasoline is generally higher during the summer months than during the winter months due to seasonal increases in highway traffic and construction work. Decreased demand during the winter months can lower gasoline prices.

Consequently, refining margins and profitability have historically generally been stronger in the second and third calendar quarters of each year relative to the first and fourth calendar quarters.


PBF LLC anticipates making cash distributions to existing owners of $142.8 million, substantially all of which will have constituted tax distributions.


If PBF LLC had paid an equivalent $0.20 per unit quarterly cash dividend during the nine months ended September 30, 2012, this would have represented the equivalent of 8% of PBF LLC's Adjusted EBITDA for that period. As of September 30, 2012, cash and cash equivalents totaled $170.0 million.

Accordingly, as of September 30, 2012, there was sufficient cash and cash equivalents available to PBF Holding to make distributions to PBF LLC, which in turn will make pro rata distributions to its members, including PBF Energy, necessary to fund in excess of one year's cash dividend payments by PBF, as well as $495.1 million of unused borrowing availability under an ABL Revolving Credit Facility to fund operations, if necessary.

PBF believes its available cash and cash equivalents, other sources of liquidity to operate the business and operating performance provides PBF with a reasonable basis for the assessment that it can support the intended dividend policy.


Blackstone, 47.6%

The Blackstone audit trail of ownership, etc seems unnecessarily complicated, but may be par for the Blackstone course.

"Consists entirely of PBF LLC Series A Units. The Blackstone Vehicles (as hereinafter defined) are comprised of the following entities: Blackstone PB Capital Partners V Subsidiary L.L.C. ("BPBCP V"), Blackstone PB Capital Partners V-AC L.P. ("BPBCP V-AC"), Blackstone Family Investment Partnership V USS L.P. ("BFIP V"), Blackstone Family Investment Partnership V-A USS SMD L.P. ("BFIP V-A"), and Blackstone Participation Partnership V USS L.P. ("BPP V", and together with BPBCP V, BPBCP V-AC, BFIP V and BFIP V-A, the "Blackstone Vehicles"). The Blackstone Vehicles beneficially own (NYSE:I) 37,131,143 PBF LLC Series A Units, which are held by BPBCP V, (ii) 6,653,361 PBF LLC Series A Units, which are held by BPBCP V-AC, (NASDAQ:III) 204,804 PBF LLC Series A Units, which are held by BFIP V, (iv) 777,759 PBF LLC Series A Units, which are held by BFIP V-A, and (NYSE:V) 94,100 PBF LLC Series A Units, which are held by BPP V. Blackstone Management Associates V USS L.L.C. ("BMA") is a general partner of each of BPBCP V and BPBCP V-AC. BCP V USS Side-by-Side GP L.L.C. ("BCP V GP L.L.C.") is a general partner of BFIP V and BPP V. Blackstone Holdings II L.P. holds the majority of membership interests in BMA and is the sole member of BCP V GP L.L.C. The general partner of Blackstone Holdings II L.P. is Blackstone Holdings I/II GP Inc. The sole shareholder of Blackstone Holdings I/II GP Inc. is The Blackstone Group L.P. The general partner of The Blackstone Group L.P. is Blackstone Group Management L.L.C., which is in turn, wholly owned by Blackstone's senior managing directors and controlled by its founder, Stephen A. Schwarzman. The general partner of BFIP V-A is Blackstone Family GP L.L.C., which is in turn, wholly owned by Blackstone's senior managing directors and controlled by its founder, Mr. Schwarzman."

First Reserve, 47.6%

First Reserve is a global energy-focused private equity and infrastructure investment firm with $23.1 billion of raised capital since the Firm's inception



PBF says the gross proceeds will be $429 million before deducting underwriting discounts.

Then it goes on to say $390 million will be used to buy Class A common stock & that the remaining proceeds of $39 remaining proceeds will be used to purchase PBF LLC Series C Units.

The addition of those two uses of proceeds adds up to the gross expected proceeds of $429 million, at the price range mid-point of $26.

S-1, page 45.


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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.