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Calumet Specialty Products Partners LP Message Board

  • mildoc3 mildoc3 Jun 3, 2012 3:54 PM Flag

    General Partner getting 50% of distributions?

    So I was going through the annual reports and I noticed that the distribution is set up so that, as the dividend rises, the general partner which owns 2% of the partnership, gets up to a max of 50% of all distributions above a certain point.

    I would really appreciate it if someone could explain what this means to us common unit holders. It seems very unit holder unfriendly and that it might mean that the dividends which have been growing very nicely, could plateau and rise no further.

    Thoughts?

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    • At our mining operation used purple, excellent product & reputation , clmt will do well with it

    • I listened to that CC. Seems like they were anxious to buy purple since it gives them an outlet for direct marketing to the retailers. Otherwise they are just a secondary supplier. Maybe that anxiousness caused them to overbuy, IMO.

    • Believe the reply to a questioner was the DCF would be near .20 DCF per unit rather than 30 something... should my memory be correct, this is good news but I do not remember any commitment that any or all of this would be passed onto unit holders via a distribution increase.

      Luck
      LTBH

    • did you catch the part where they thought it may result in a $.20 per year increase in distributions?

    • You might've been right the first time. I just read the Seeking Alpha transcript. In the Q & A session, read the discussion with the Appaloosa rep. CLMT said that the acquisition would be $.20 accretive to cash flows and distributions.

    • Sorry, I meant half a cent increase or better.

      No, didn't get it filled but hoping that next week brings return of blind panic.

    • mildoc, thanks for your comments regarding the conference call. Actually, mgmt has not been increasing the divy by $.05 per quarter. The last two increses were by $.03 each. Before that, it was less. So, if they said they intend to increase divys by $.20 per unit annually, that indeed would be big jump.
      Did you get your $22.50 buy order filled? CLMT was trading in the low 22s this morning, but I don't think it ever got below $22.50 in the last 1/2 hour of trading.

    • Here is specifically what is stated in the annual report:

      Intent to Distribute the Minimum Quarterly Distribution.

      We distribute to the holders of common units on a quarterly basis at least the minimum quarterly distribution of $0.45 per unit, or $1.80 per year, to the extent we have sufficient cash from our operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner. However, there is no guarantee that we will pay the minimum quarterly distribution on the units in any quarter. Even if our cash distribution policy is not modified or revoked, the amount of distributions paid under our policy and the decision to make any distribution is determined by our general partner, taking into consideration the terms of our partnership agreement. We will be prohibited from making any distributions to unitholders if it would cause an event of default, or an event of default is existing, under our credit agreements. Please read Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Debt and Credit Facilities" for a discussion of the restrictions in our credit agreements that restrict our ability to make distributions. On February 14, 2011, we paid a quarterly cash distribution of $0.47 per unit on all outstanding units totaling $16.9 million for the quarter ended December 31, 2010 to all unitholders of record as of the close of business on February 4, 2011.

      General Partner Interest and Incentive Distribution Rights.

      Our general partner is entitled to 2% of all quarterly distributions since inception that we make prior to our liquidation. This general partner interest is represented by 719,995 general partner units. Our general partner has the right, but not the obligation, to contribute a proportionate amount of capital to us to maintain its current general partner interest. The general partner's 2% interest in these distributions may be reduced if we issue additional units in the future and our general partner does not contribute a proportionate amount of capital to us to maintain its 2% general partner interest. Our general partner also currently holds incentive distribution rights that entitle it to receive increasing percentages, up to a maximum of 50%, of the cash we distribute from operating surplus (as defined below) in excess of $0.495 per unit. The maximum distribution of 50% includes distributions paid to our general partner on its 2% general partner interest, and assumes that our general partner maintains its general partner interest at 2%. The maximum distribution of 50% does not include any distributions that our general partner may receive on units that it owns. Our general partner did not earn incentive distribution rights during the years ended December 31, 2009 and December 31, 2010.

      And here is the distribution schedule

      Up to 49.5 cents/share we (unit holders) get 98% of the distribution as we hold 98% of the units.

      Above 49.5 cents-56.3 cents We get 85% while General partner gets 15%

      From 56.3-67.5 cents we get 75% and General partner gets 25%

      Above 67.5 cents we get 50% and general partner gets 50%.

      Now CLMT has never paid out more than 60 cents/unit/quarter so we've never seen what happens but I am just concerned that because of the payout schedule that favors the general partner so heavily, it will be more and more difficult to pay a higher dividend.

      Any thoughts?

      • 3 Replies to mildoc3
      • Many MLP's do have these Incentive Distribution Rights that pay an increasing share of distributions to the General Partner. This provides an incentive to the GP to drop down or sell assets it has developed to the Limited Partnership that will provide reliable revenues and profits to the LP.

        A number of analysts have complained re transparency and alignment of these incentives are lacking given CMLT Fehsenfield and Grube family ownership. Nonetheless, the distributions exceed the typical MLP by a wide margin.

        More interested in learning about the recent Royal Purple acquisition and how it will be paid for-- $335M total vs $149 from recent secondary.

      • IDR 'S are common. All MLP'S with a G.P. have them . Above a certain prescribed level DiSTRIBUTION growth slows to the L.P.as the G.P., WHO TYPICALLY HAS A CONTROLLING INTEREST becomes entitled to a larger % of DCF.(distributable cash flow ).

        Not unique to CLMT.

      • Let's say company decides to pay 70 cents dividend, then this is how you calculate the divident we get:
        49.5 + (56.3 - 49.5) * .85 + (67.5 - 56.3) * .75 + (70 - 67.5) * .5 = about 64.9 cents

 
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