Calumet Suspends Dividend, Adds Debt to Stay Afloat
By Carleton English Follow | Apr 18, 2016 | 8:42 AM EDT | 0
Another dividend bites the dust.
After Friday's market close, Calumet Specialty Products (CLMT) announced that it was suspending its $2.74 annual dividend and that it priced a $400 million private placement offering of 11.5% senior secured notes due 2021.
"The proceeds raised from the senior secured notes offering, in conjunction with a suspension in our quarterly cash distribution, position us to manage our capital structure with prudence and conservatism during a challenging period for our business, while repositioning the Partnership for long-term strategic growth in our core specialty products markets," CEO Tim Go said in Friday's statement.
Shares went into free-fall following the news, falling 30% in after-hours trading Friday and losing another 50% in early trading Monday to about $4.97.
Calumet's dividend cut was just one of many cuts -- or outright suspensions -- announced over the past year among companies once loved by income-starved investors. (Others include Kinder Morgan (KMI), Chesapeake Energy (CHK), and Southwestern Energy (SWN).)
The Indiana-based company produces hydrocarbon and fuel products, which are in turn used for industrial, consumer and automotive products. Shares of the company are down more than 60% over the last year.
While Calumet's dividend cut is enough to scare current investors, its $400 million private placement offering also inspires fear.
The senior secured notes, which bear a high 11.5% interest rate, are guaranteed by all of Calumet's existing subsidiaries, with the exception of Calumet Finance. Proceeds from the offering are going to be used to repay borrowings under its revolving credit facility.
However, in Friday's statement, Calumet acknowledged that it may end up re-borrowing from its credit facility and that the re-borrowed funds may be used for working capital, capital expenditures and debt repurchases. Its total long-term debt load, inclusive of the offering, is approximately $2 billion, which means it increased its debt by nearly 25% to hang on, according to a filing with the Securities and Exchange Commission released Monday. Calumet has also not ruled out issuing equity to raise cash.
Calumet plans to release first-quarter earnings on May 5, but it gave a preview Friday, saying the company expects to report a net loss between $59 million and $83 million. Weaker oil prices have reduced the demand for the drilling products Calumet produces. The company said it expects to have $7.4 million cash on hand, down from $272.8 million from the first quarter a year ago.
The company also said that it was unable to realize much benefit from the rally in oil prices seen in the first quarter, due in part to the short-term lag in readjusting prices. As the price of oil is unlikely to gain much after the Doha meeting over the weekend failed to produce a production cut agreement, it is unlikely that Calumet will see much relief soon.
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