Why Is Western Refining Raising $500 Million?



Series outline

Western Refining (WNR) plans to raise $500 million via a term loan. Before we delve deeper into the details, let’s see what you can expect from this series.

In this series, we’ll give you insights into the company’s operations, financials, and market performance. We’ll examine WNR’s stock performance, analyst ratings, and segment dynamics followed by its leverage and cash flow position. Finally, we’ll discuss WNR’s valuations and test its stock correlation with crude oil prices.

Now let’s begin by examining WNR’s proposed loan details.

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Western Refining is raising $500 million

Western Refining (WNR) will raise $500 million to fund a portion of the Northern Tier Energy (NTI) acquisition. The loan, as well as the acquisition, are expected to close by the end of June 2016. The proposed term loan will mature in seven years and rank at par with its existing term loan.

WNR holds a ~38% limited partner interest in NTI. The public holds the remaining limited partner interest of ~62%. WNR also holds a 100% general partner interest in NTI. Per the WNR offer, each public unit holder of NTI has the following options.

  • $15.00 in cash and 0.2986 Western’s share per NTI unit (the “Standard Mix”)
  • $26.06 in cash per NTI unit
  • 0.7036 Western’s share per NTI unit

WNR is expected to pay approximately $858 million in cash and deliver 17.1 million WNR shares to acquire NTI. WNR’s current consolidated debt in 1Q16 was $1.7 billion, and its cash stood at $0.6 billion. The proposed loan (expected to fund the cash portion of NTI acquisition) is likely to raise the total debt. We discuss the impact of the proposed term loan on WNR’s leverage later in this series.

WNR’s peer HollyFrontier (HFC) has also raised $250 million via a bond issue. For more on this news, see How $250 Million Bond Issue Will Affect HollyFrontier.

For exposure to the refining sector, you can consider the Vanguard Energy ETF (VDE). The ETF has ~11% exposure to the sector, including Marathon Petroleum (MPC) and Valero Energy (VLO).


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