Description

Brief write-up as Gulf Finance (Gulfin) is a private issuer (MS is the agent for more information) and not suitable for larger funds as most of the supply is already locked up and there is a smaller sub-group that’s in dialogue with the Sponsor. While not suitable for larger funds, there is likely $25-$75MM of supply at this stage.

Gulfin’s term loan is an event-oriented credit that has top of capital structure positioning, hard asset coverage, GDP-recovery business model with a Sponsor (ArcLight) that has significant (>$800 million) capital at risk (plus $146MM of term loan ownership) and a >20% return profile. Gulfin’s term loan (L + 525, effectively ~6.25% coupon) is top-of-structure (($1.025Bln total size), transacting in the mid-80s and has a path to >20% return profile (~15 pts of OID upside + ~1.5 pts of coupon = >16.5 pts of n-term upside with clarity around the capital structure very likely over the next few months). While the credit is private issuer (MS is the agent and can provide additional information), the fact pattern is noted below and the Sponsor (ArcLight Capital) will very likely contribute additional equity + subordinate / equitize their existing term loan ownership to help facilitate an extension of the term loan.

Gulfin came together in 2015 with the combination of Penn Products (9 terminals) and Chelsea Petroleum Products (1,800 Gulf stations and ~8 terminals). ArcLight Capital acquired the combined entity for >$2 billion and has >$800 million of equity remaining in the business. Gulfin has two business segments: 1) Terminals include a network of 17 refined product terminals located in the Northeast with storage capacity of ~14 million barrels. The terminals are nearly impossible to replicate and benefit from very strategic geographic positioning in robust demand hubs – as an example, in the state of Pennsylvania, Gulfin is able to service >70% of the state’s demand. The storage terminals fully cover the debt with recent terminal asset sales supporting this view (transacting at 12x – 15x EBITDA). In fact, our checkings on the Penn Products portion of the business suggest these terminals alone (excluding the Chelsea terminals) likely provide robust asset coverage to the debt.  2) Retail: Gulfin distributes refined products to dealers and distributors and has a network of >1,800 Gulfin branded stations. The independent dealer customers enter into exclusive and long-term supply agreements with Gulfin and benefit from the Gulfin brand and a supply arrangement.

The term loan has an August 2023 maturity and the ABL matures at the end of this year. Per Debtwire articles, the Sponsor is engaged with a small group of lenders on an Amend & Extend of the term loan. Our understanding is that the Gulfin investment is one of the largest in the Sponsor portfolio and ArcLight is committed to the investment (i.e. the investment is too large to fail for their entire platform). Notably, the Sponsor bought ~15% of the term loan over the past 12-months and will likely subordinate these holdings to help facilitate a refinancing. I expect more clarity out of the Sponsor in the next few months that should result in a par-catalyst for the term loan.

If anyone decides to dig deeper into the credit, can address any questions in the messages.

Catalyst

A&E clarity and additional equity support by Sponsor