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Calumet’s High Leverage: A Key Concern for Investors


Nov. 20 2020, Updated 11:02 a.m. ET

Calumet’s net debt-to-equity ratio

Currently, Calumet Specialty Products Partners’ (CLMT) net debt-to-equity ratio stands at an alarmingly high level of 4.1x. In comparison, Alon USA Partners (ALDW) and CVR Refining (CVRR) have debt-to-equity ratios of 1.4x and 0.35x, respectively. So, Calumet’s ratio is much higher compared to Alon USA Partners and CVR Refining. Calumet had a total outstanding debt of ~$2 billion at the end of 1Q16.

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Net debt-to-EBITDA ratio

The above graph shows Calumet’s quarterly net debt-to-equity and net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratios over the last three years.

Calumet’s net debt-to-EBITDA ratio is also high at 15.8x. The debt-to-EBITDA ratio is often used to assess a company’s ability to repay debt. It’s commonly used by credit rating agencies to determine a company’s credit rating. A lower ratio is considered better from a credit perspective.

As the above graph shows, the ratio rose substantially in 1Q16. However, even before the rise, the ratio was higher than generally desirable.

In comparison, Alon USA Partners and CVR Refining have net debt-to-EBITDA ratios of 0.8x and 1.4x, respectively.

Calumet’s high leverage has been a concern for some time. To learn more, read Calumet Specialty Products Partners Has a High Leverage.

Debt issuance

In April, Calumet issued $400 million of senior secured notes due in 2021 through a private placement. Calumet intends to use the net proceeds from this to repay borrowings outstanding under its revolving credit facility and to “terminate or cash collateralize certain of its existing hedging obligations.”

In the next part, we’ll analyze where Calumet stands compared to its own historical valuation and its peers.


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