PBF Logistics LP 6.875% 2023 Senior Notes: 10% Yield To Maturity, 4.7X Coverage

Summary

• PBFX had 4.73X interest coverage in Q2, vs. 4.39 in Q1 2020.
• Its 2023 Senior Notes now yield 7.19% and go ex-dividend for their semi-annual interest payment on ~ 11/11/20.
• The annualized yield to maturity is 10.05%.
• This idea was discussed in more depth with members of my private investing community, Hidden Dividend Stocks Plus. Get started today »

Company Profile:

PBF Logistics LP (PBFX) is a midstream energy company. It owns, leases, acquires, develops, and operates crude oil and refined petroleum products terminals, pipelines, storage facilities, and other logistics assets in the United States. It has two segments: Transportation and Terminaling, and Storage.

It engages in the receiving, handling, storage, and transferring of crude oil, refined products, natural gas, and intermediates. PBF Logistics GP LLC serves as the general partner of PBF Logistics LP. The company was founded in 2012 and is headquartered in Parsippany, New Jersey. PBF Logistics LP is a subsidiary of PBF Energy Inc.

PBFX had been one of the more stable midstream LPs over the past few years, but then COVID-19 hit, and heavily pressured its price/unit. In order to safeguard liquidity, management cut the quarterly common distribution from $.52 to $.30 in May 2020. This led to better distribution coverage of 2.16 in Q1 2020, and 2.49 in Q2 2020, with a trailing DCF coverage ratio of 1.6X.

However, we moved up the creditor ladder to PBFX 6.875% 5/15/2023 Senior Notes.

Their current yield is 7.19%. These senior notes put us above the common in a liquidation scenario. They're continuously callable, at a rate of $101.72 until 5//15/2021, when they become callable at the par value of $100.00.

(Schwab.com)

Yield To Maturity:

Due to the current discount, these notes have an attractive annualized yield to maturity of 10.05%. If they aren't redeemed prior to their 5/15/2023 maturity date, there will be $20.63 in interest payments.

In addition, there's a $4.36 capital gain, for a net profit of $24.99 at maturity, a total return of 26.12%:

Financials/Interest Coverage:

PBFX's EBITDA/interest coverage already was strong, at 4.08X in Q2 '19. In Q1 2020, it improved to 4.39, and in Q2 2020, it improved yet again, to 4.73X.

Total debt/equity also improved a great deal in Q2 2020, to 6.04X, after rising to 8.32X in Q1 2020, while net debt/EBITDA improved to 3.30X, the lowest leverage we've seen from PBFX in nearly three years.

Debt and Liquidity:

Total debt decreased ~4% in Q1-Q2 2020, to $768M, vs. $802M as of 12/31/19.

As of June 30, 2020, PBFX had approximately $268.7 million of liquidity, including approximately $21.6 million in cash and cash equivalents, and access to approximately $247.1 million under its revolving credit facility.

(PBFX Q2 2020 10Q)

Earnings:

Although revenue dipped slightly in Q2 2020, PBFX's earnings, (net income, adjusted EBITDA, distributable cash flow, and EPU), actually increased sequentially in Q1-Q2 2020, vs. Q3-4 '19:

Management issued 2020 Guidance in January, before COVID-19 hit, which called for $390M in revenue and $225M in EBITDA.

Although pro-rated revenue for Q1-2 '20 is lagging that pre COVID-19 estimate, Q1-2 EBITDA of $116M is slightly ahead of the pro-rated $112M, ($225M full year), that guidance called for.

Interest expense in Q1-2 2020 was lower, at $23.38M, vs. $27.5M pro-rated, ($55M full year):

(PBFX site)

All categories also had healthy gains vs. one year ago figures.

Earnings growth was "primarily attributable to the recommencement of operations of certain assets at our East Coast storage facility, operations of recently constructed assets; and "a decrease in operating and maintenance expenses of approximately $5.8 million, or 9.9%; and "a decrease in general and administrative expenses of approximately $4.9 million, or 36.1%, as a result of decreased acquisition costs and unit-based compensation expense" (PBFX site):

Segment Earnings:

Transportation and Terminalling revenue was down ~4.2% in Q2 2020, but was up slightly for Q1-2 2020. The Storage segment had strong gains, rising ~72% in Q2, and 12.7% in Q1-2 2020.

(PBFX Q2 2020 10Q)

Parent Company - PBF Energy:

PBF Energy (NYSE:PBF) is "one of the largest independent petroleum refiners and suppliers of unbranded transportation fuels, heating oil, petrochemical feedstocks, lubricantsand other petroleum products in the US. We sell our products throughout the Northeast, Midwest, Gulf Coast and West Coast of the United States, as well as in other regions of the United States, Canada and Mexico and are able to ship products to other international destinations. As of June 30, 2020, we own and operate six domestic oil refineries and related assets with a combined processing capacity, known as throughput, of approximately 1,050,000 barrels per day(“bpd”), and a weighted-average Nelson Complexity Index of 12.8." (PBF site)

PBF reported a Q1 2020 net loss of -$1,062.5M, mainly due to a non-cash LCM adjustment of -$1,285.6M on a net basis resulting from the decrease in crude oil and refined product prices from the year ended 2019 to the end of the first quarter of 2020. There was also a -$22.2M loss on debt extinguishment.

Things improved in Q2 2020, with net income of $533.9M, vs. a net loss of -$47M in Q2 '19.

PBF's management took several steps to bolster PBF's liquidity in Q2 2020:

"Raised net proceeds of approximately $987.5M through the May 13, 2020 issuance of $1.0B in aggregate principal amount of 9.25% senior secured notes due 2025 (the “2025 Senior Secured Notes”);

Closed on the sale of five hydrogen plants for gross cash proceeds of $530M on April 17, 2020;

Reduced 2020 planned capital expenditures by ~$240.0M.

We subsequently identified additional reductions in capital expenditures and currently estimate an aggregate reduction of approximately $357M in 2020 planned capital expenditures, an approximate 49% reduction to our previous 2020 budget." (PBF site)

PBF's management expects to incur roughly $15M of capex per month from July onwards and our full year refining capex should be approximately $360 million. "We have incurred 75% of our refining capital expenditures during the first half of the year."

"Our current liquidity is approximately $1.9 billion based on a cash balance of $1.2 billion in more than $700 million of available borrowing capacity under our asset-backed revolving credit facility. Since May, we repaid approximately $300 million on our revolving credit facility and have seen our borrowing base increase as commodity prices rebounded since the April lows." (Q2 2020 call)

(PBF Q2 2020 10Q)

We rate the PBFX 6.875% 5/15/2023 Senior Notes a Buy.

All tables by DoubleDividendStocks.com.

Disclosure: I am/we are long PBFX 2023 SENIOR NOTES. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.