U.S-based hydrocarbon and fuel products producer Calumet Specialty Products (Calumet) announced that it had suspended its annual dividend of $2.74 a share ($0.685 a share on a quarterly basis), sending its shares into a freefall of 30% on Friday and another 50% in early trade on Monday. The dividend cut, unanimously voted by the company’s Board, was based on sustained commodity price volatility and seasonally weak realized margins.
Separately, Calumet announced a private placement of a $400m Senior Secured Note due 2021 paying 11.5%. The notes are guaranteed by all of Calumet’s existing subsidiaries except Calument Finance.
Proceeds from the issuance would be utilized towards reducing its oustanding debt under its revolver, terminating certain hedging obligations and for general corporate purposes.
Investors were alarmed by the dividend cut and their fears were compounded further with the debt announcement.
Calumet’s long-term debt, inclusive of the offering, was approximately $2bn, an increase of 25% over the previous quarter. The company has also not ruled out issuing equity to raise cash.
Calumet, which plans on releasing its 1Q’16 earnings on 5 May 2016, provided investors a preview on Friday, stating that the company expected a net loss between $59 – 83m on weaker oil prices, which had reduced the demand for the drilling products Calumet produces. Cash on the books is expected at $7.4m, down significantly from $272.8m it had a year ago.