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Actionable news in CLMT: Calumet Specialty Products Partners, L.P.,

How Messed Up Is Calumet Specialty Products?


After market close on Friday, Calumet Specialty Products announced it was suspending its quarterly distribution. The MLP was paying a high 20% plus yield.

Calumet has serious cash flow problems which may not be solved by just suspending distribution payments. This is a company that needs serious restructuring.

It's curious how the CLMT unit value dropped by 25% in the two trading days before the announcement. Expect a 50% or more drop on Monday.

Like bad news out of a Federal agency, Calumet Specialty Products Partners (NASDAQ:CLMT) dropped a bomb at 5:30 PM Eastern time on Friday, April 15. The biggest piece of news is that the company has suspended the payment of distributions to limited partner unit holders. While a distribution cut should not be a big surprise, as I discussed in an article in February, the complete suspension will be hard on investors who own CLMT units. However, it appears the company waited too long to reduce the unsupported distribution rate, and now is in the scramble to cover interest payments and expenses mode, while trying to straighten some of Calumet's money losing business sectors. I expect the CLMT unit value to drop below $5 on Monday, and the question now is whether the company has a viable future for investors or will be forced into a reorganization.

Before I crunch a few numbers, here is a recap of the reasons why Calumet has landed in its current situations:

  • The company insisted on maintaining its status as a fixed distribution rate MLP, even though the fuels products production and sales half of the business generates highly variable profits, or even quarterly losses.
  • Management insisted in growing the distributions even though distributable cash flow was well short of the cash needed to pay distributions. In 2013, the quarterly distribution was increased twice, even though DCF for the year only covered 10% (0.10 times) the distributions paid.
  • $750 million of organic growth products over the last several years have been mostly a bust and have not generated the forecast $200 million plus of added annual EBITDA.
  • The first three quarters of 2015 were very profitable for crude oil refiners. The Calumet business plan looked like it was working with 1.33 times DCF coverage for those three quarters. Then refining margins collapsed in 2015 Q4 and 2016 Q1, resulting in close zero DCF for Q4 and a big loss for Q1.

New management under new CEO Tim Go took over February this year. He has a big job to turn around this foundering company.

Cash Flow Numbers

The press release...