Item 2. Management’s Discussion and Analysis
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This Management's Discussion and Analysis of Financial Condition and Results of Operations section should be read in conjunction with the accompanying consolidated financial statements and the notes thereto and the consolidated financial statements and notes thereto included in Westlake Chemical Partners LP's annual report on Form 10-K for the fiscal year ended December 31, 2020 (the "2020 Form 10-K"), as filed with the SEC on March 2, 2021. Unless otherwise indicated, references in this report to "we," "our," "us" or like terms, refer to Westlake Chemical Partners LP (the "Partnership"), Westlake Chemical OpCo LP ("OpCo") and Westlake Chemical OpCo GP LLC ("OpCo GP"). References to "Westlake" refer to Westlake Chemical Corporation and its consolidated subsidiaries other than the Partnership, OpCo GP and OpCo. The following discussion contains forward-looking statements. Please read "Forward-Looking Statements" for a discussion of limitations inherent in such statements.
Partnership Overview
We are a Delaware limited partnership formed by Westlake to operate, acquire and develop ethylene production facilities and related assets. On August 4, 2014, we closed our initial public offering (the "IPO") of 12,937,500 common units. In connection with the IPO, we acquired a 10.6% interest in OpCo and a 100% interest in OpCo GP, which is the general partner of OpCo. On April 29, 2015, we purchased an additional 2.7% newly-issued limited partner interest in OpCo, resulting in an aggregate 13.3% limited partner interest in OpCo, effective April 1, 2015. The 12,686,115 subordinated units of the Partnership, all of which were previously owned by Westlake, were converted into common units of the Partnership on August 30, 2017. On September 29, 2017, we completed a secondary public offering of 5,175,000 common units and purchased an additional 5.0% newly-issued limited partner interest in OpCo, resulting in an aggregate 18.3% limited partner interest in OpCo, effective July 1, 2017. On March 29, 2019, we completed a private placement of 2,940,818 common units and used the net proceeds to purchase an additional 4.5% interest in OpCo, effective January 1, 2019, resulting in us owning an aggregate 22.8% limited partner interest in OpCo.
Our sole revenue generating asset is our 22.8% limited partner interest in OpCo, a limited partnership formed by Westlake and us in anticipation of the IPO to own and operate an ethylene production business. We control OpCo through our ownership of its general partner. Westlake retains the remaining 77.2% limited partner interest in OpCo as well as a significant interest in us through its ownership of our general partner, 40.1% of our limited partner units (consisting of 14,122,230 common units) and our incentive distribution rights. OpCo's assets include (1) two ethylene production facilities ("Petro 1" and "Petro 2" and, collectively, "Lake Charles Olefins") at Westlake's Lake Charles, Louisiana site; (2) one ethylene production facility ("Calvert City Olefins") at Westlake's Calvert City, Kentucky site; and (3) a 200-mile common carrier ethylene pipeline (the "Longview Pipeline") that runs from Mont Belvieu, Texas to Westlake's Longview, Texas facility.
How We Generate Revenue
We generate revenue primarily by selling ethylene and the resulting co-products we produce. OpCo and Westlake have entered into an ethylene sales agreement (the "Ethylene Sales Agreement") pursuant to which we generate a substantial majority of our revenue. The Ethylene Sales Agreement is a long-term, fee-based agreement with a minimum purchase commitment and includes variable pricing based on OpCo's actual feedstock and natural gas costs and estimated other costs of producing ethylene (including OpCo's estimated operating costs and a five-year average of OpCo's expected future maintenance capital expenditures and other turnaround expenditures based on OpCo's planned ethylene production capacity for the year), plus a fixed margin per pound of $0.10 less revenue from co-products sales. Pursuant to the Ethylene Sales Agreement, Westlake's obligation to pay for the annual minimum commitment (95% of OpCo's budgeted ethylene production), which is measured on an annual basis, is not reduced for the first 45 days of a force majeure event, but is reduced for the portion of a force majeure event extending beyond the 45th day. In the event of a force majeure event, we recognize buyer deficiency fees representing fixed margin and unavoided operating and maintenance capital expenditures and maintenance expenses associated with ethylene that OpCo would have produced and is not expected to be produced based on anticipated production. Payment for the buyer deficiency fee is scheduled to be received by the Partnership after the conclusion of the year.
Westlake has an option to take 95% of volumes in excess of the minimum commitment on an annual basis under the Ethylene Sales Agreement if we produce more than our planned production. Under the Ethylene Sales Agreement, the price for the sale of such excess ethylene to Westlake is based on a formula similar to that used for the minimum purchase commitment, with the exception of certain fixed costs. In addition, under the Ethylene Sales Agreement, if production costs billed to Westlake on an annual basis are less than 95% of the actual production costs incurred by OpCo during the contract year, OpCo is entitled to recover the shortfall in such production costs (proportionate to the volume sold to Westlake) in the subsequent year ("Shortfall"). The Shortfall is generally recognized during the period in which the related operating, maintenance or turnaround activities occur.
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Operating Expenses, Maintenance Capital Expenditures and Turnaround Costs
Our management seeks to maximize the profitability of our operations by effectively managing operating expenses, maintenance capital expenditures and turnaround costs. Our operating expenses are comprised primarily of feedstock costs and natural gas, labor expenses (including contractor services), utility costs (other than natural gas) and turnaround and maintenance expenses. With the exception of feedstock, including natural gas, and utilities-related expenses, operating expenses generally remain relatively stable across broad ranges of production volumes but can fluctuate from period to period depending on the circumstances, particularly maintenance and turnaround activities. Our maintenance capital expenditures and turnaround costs are comprised primarily of maintenance of our ethylene production facilities and the amortization of capitalized turnaround costs. These capital expenditures relate to the maintenance and integrity of our facilities. We capitalize the costs of major maintenance activities, or turnarounds, and amortize the costs over the period until the next planned turnaround of the affected facility.
Operating expenses, maintenance capital expenditures and turnaround costs are built into the price per pound of ethylene charged to Westlake under the Ethylene Sales Agreement. Because the expenses other than feedstock costs and natural gas are based on forecasted amounts and remain a fixed component of the price per pound of ethylene sold under the Ethylene Sales Agreement for any given 12-month period, our ability to manage operating expenses, maintenance expenditures and turnaround cost may directly affect our profitability and cash flows. The impact on profitability is partially mitigated by the fact that we generally recognize any Shortfall as revenue in the period such costs and expenses are incurred. We seek to manage our operating and maintenance expenses on our ethylene production facilities by scheduling maintenance and turnarounds over time to avoid significant variability in our operating margins and minimize the impact on our cash flows, without compromising our commitment to safety and environmental stewardship. In addition, we reserve cash on an annual basis from what we would otherwise distribute to minimize the impact of turnaround costs in the year of incurrence. The purchase price under the Ethylene Sales Agreement is not designed to cover capital expenditures for expansions.
MLP Distributable Cash Flow and EBITDA
The body of accounting principles generally accepted in the United States is commonly referred to as "GAAP." For this purpose, a non-GAAP financial measure is generally defined by the Securities and Exchange Commission ("SEC") as a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that (1) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the registrant; or (2) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. We use the non-GAAP measures of MLP distributable cash flow and EBITDA to analyze our performance. We define distributable cash flow as net income plus depreciation, amortization and disposition of property, plant and equipment, less contributions for turnaround reserves, maintenance capital expenditures and mark-to-market adjustment on derivative contracts. We define MLP distributable cash flow as distributable cash flow less distributable cash flow attributable to Westlake's noncontrolling interest in OpCo and distributions attributable to the incentive distribution rights holder. MLP distributable cash flow does not reflect changes in working capital balances. We define EBITDA as net income before interest expense, income taxes, depreciation and amortization. We use each of MLP distributable cash flow and EBITDA to analyze our performance. Fees for a buyer deficiency and Shortfall are included in net income in the periods in which they are recognized. MLP distributable cash flow and EBITDA are non-GAAP supplemental financial measures that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess our operating performance as compared to other publicly-traded partnerships; our ability to incur and service debt and fund capital expenditures; and the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.
MLP distributable cash flow is not a substitute for the GAAP measures of net income and net cash provided by operating activities. MLP distributable cash flow has important limitations as an analytical tool because it excludes some but not all items that affect net income and net cash provided by operating activities. EBITDA is not a substitute for the GAAP measures of net income, income from operations and net cash provided by operating activities. In addition, it should be noted that companies calculate EBITDA differently and, therefore, EBITDA as presented for us may not be comparable to EBITDA reported by other companies. EBITDA has material limitations as a performance measure because it excludes interest expense, depreciation and amortization, and income taxes. Reconciliations for each of MLP distributable cash flow and EBITDA are included in the "Results of Operations" section below.
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Significant Developments Affecting Industry Conditions and Our Business
COVID-19, Industry Conditions and Our Business
On March 11, 2020, the World Health Organization declared the ongoing coronavirus (COVID-19) outbreak a pandemic and recommended containment and mitigation measures worldwide. The pandemic has resulted in widespread adverse impacts on the global economy and on our employees, customers and suppliers. We have not experienced significant disruptions to our business operations and do not expect to experience significant disruptions to our business operations resulting from COVID-19, primarily due to the fact that 95% of our production is sold to Westlake on a take-or-pay contract.
Our first priority in our response to this crisis has been the health and safety of our operators, who are seconded to us by Westlake, and those of our customers and vendors. Westlake has implemented preventative measures and developed corporate and regional response plans to minimize unnecessary risk of exposure. We and Westlake have modified certain business practices (including those related to employee travel, employee work locations and employee work practices) to conform to government restrictions and best practices encouraged by the Center for Disease Control and Prevention, the World Health Organization and other governmental and regulatory authorities. We and Westlake have implemented strategies to reduce costs, increase operational efficiencies and lower capital spending. We also deferred the planned turnaround at OpCo's Petro 2 ethylene unit and associated maintenance cost from 2020 to the second half of 2021. The turnaround is expected to last approximately 60 days.
February Winter Storm
In February 2021, large parts of the southern United States, including Louisiana and Kentucky, experienced a severe winter storm. Due to the severe winter storm, OpCo's ethylene production facilities in the region experienced disruption to their operations, resulting in lost production and additional maintenance costs. OpCo declared force majeure under the Ethylene Supply Agreement during February and March 2021. As a result of the force majeure events, we recognized a buyer deficiency fee of $5.5 million and a Shortfall of $4.2 million in the first quarter of 2021 that are scheduled to be received by the Partnership after the end of 2021. The buyer deficiency fee is associated with ethylene that OpCo would have produced and is not expected to be produced in 2021 based on anticipated production. OpCo's production facilities have since resumed production.
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Results of Operations
Three Months Ended March 31,
2021 2020
(dollars in thousands)
Revenue
Net sales—Westlake $ 219,803 $ 214,828
Net co-product, ethylene and other sales—third parties
48,404 35,721
Total net sales 268,207 250,549
Cost of sales 180,508 147,001
Gross profit 87,699 103,548
Selling, general and administrative expenses 8,673 6,196
Income from operations 79,026 97,352
Other income (expense)
Interest expense—Westlake (2,236) (3,950)
Other income, net 7 585
Income before income taxes 76,797 93,987
Income tax provision 175 217
Net income 76,622 93,770
Less: Net income attributable to noncontrolling interest in OpCo
61,476 76,023
Net income attributable to Westlake Chemical Partners LP
$ 15,146 $ 17,747
MLP distributable cash flow (1)
$ 16,245 $ 18,337
EBITDA (2)
$ 106,575 $ 123,968
____________
(1) See "Reconciliation of MLP Distributable Cash Flow to Net Income and Net Cash Provided by Operating Activities" below.
(2) See "Reconciliation of EBITDA to Net Income, Income from Operations and Net Cash Provided by Operating Activities" below.
Three Months Ended March 31, 2021
Average
Sales Price Volume
Product sales prices and volume percentage change from prior-year period
+22.2 % -19.0 %
Three Months Ended March 31,
2021 2020
Average industry prices (1)
Ethane (cents/lb) 8.1 4.7
Propane (cents/lb) 21.2 8.8
Ethylene (cents/lb) (2)
45.1 15.8
_____________
(1) Industry pricing data was obtained through IHS Markit ("IHS"). We have not independently verified the data.
(2) Represents average North American spot prices of ethylene over the period as reported by IHS.
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Reconciliation of MLP Distributable Cash Flow to Net Income and Net Cash Provided by Operating Activities
The following table presents reconciliations of MLP distributable cash flow to net income and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.
Three Months Ended March 31,
2021 2020
(dollars in thousands)
Net cash provided by operating activities $ 155,408 $ 110,961
Loss from disposition of fixed assets (1,359) (97)
Changes in operating assets and liabilities and other (77,427) (17,094)
Net Income 76,622 93,770
Add:
Depreciation, amortization and disposition of property, plant and equipment
28,898 26,127
Mark-to-market adjustment gain on derivative contracts — (2,491)
Less:
Contribution to turnaround reserves (12,332) (9,923)
Maintenance capital expenditures (11,743) (11,121)
Distributable cash flow attributable to noncontrolling interest in OpCo
(65,200) (78,025)
MLP distributable cash flow $ 16,245 $ 18,337
Reconciliation of EBITDA to Net Income, Income from Operations and Net Cash Provided by Operating Activities
The following table presents reconciliations of EBITDA to net income, income from operations and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.
Three Months Ended March 31,
2021 2020
(dollars in thousands)
Net cash provided by operating activities $ 155,408 $ 110,961
Loss from disposition of fixed assets (1,359) (97)
Changes in operating assets and liabilities and other (77,427) (17,094)
Net Income 76,622 93,770
Less:
Other income, net 7 585
Interest expense (2,236) (3,950)
Provision for income taxes (175) (217)
Income from operations 79,026 97,352
Add:
Depreciation and amortization 27,542 26,031
Other income, net 7 585
EBITDA $ 106,575 $ 123,968
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Summary
For the quarter ended March 31, 2021, net income was $76.6 million on net sales of $268.2 million. This represents a decrease in net income of $17.2 million as compared to net income of $93.8 million on net sales of $250.5 million for the quarter ended March 31, 2020. Net income attributable to the Partnership for the first quarter of 2021 was $15.1 million as compared to $17.7 million for the first quarter of 2020, a decrease of $2.6 million. Net income and net income attributable to the Partnership for the first quarter of 2021 as compared to the first quarter of 2020 were lower primarily due to lower sales volumes to Westlake and third parties and higher feedstock and conversion costs. The decreases were partially offset by higher sales prices for ethylene sold to Westlake per the terms of the Ethylene Sales Agreement and to third parties, as well as the buyer deficiency fee of $5.5 million and the Shortfall of $4.2 million recognized in the first quarter of 2021 due to the force majeure events in February and March 2021 resulting from the severe winter storm. Net sales for the first quarter of 2021 increased by $17.7 million as compared to net sales for the first quarter of 2020, mainly due to higher sales prices to Westlake per the terms of the Ethylene Sales Agreement and to third parties, as well as the buyer deficiency fee and the Shortfall recognized during the first quarter of 2021, partially offset by lower sales volumes to Westlake and third parties during the first quarter of 2021. Income from operations was $79.0 million for the first quarter of 2021 as compared to $97.4 million for the first quarter of 2020. Income from operations for the first quarter of 2021 decreased mainly as a result of decreased sales volumes to Westlake and third parties, increased selling, general and administrative costs and higher feedstock and conversion costs, as compared to the first quarter of 2020, partially offset by higher sales prices for ethylene sold to Westlake and third parties, as well as the buyer deficiency fee and the Shortfall recognized during the period.
RESULTS OF OPERATIONS
First Quarter 2021 Compared with First Quarter 2020
Net Sales. Total net sales increased by $17.7 million, or 7.1%, to $268.2 million in the first quarter of 2021 from $250.5 million in the first quarter of 2020. The increase in net sales in the first quarter of 2021 was primarily due to higher sales prices to Westlake per the terms of the Ethylene Sales Agreement and to third parties, the buyer deficiency fee of $5.5 million and the Shortfall of $4.2 million recognized during the period, partially offset by lower sales volumes to Westlake and third parties during the first quarter of 2021. The average sales price in the first quarter of 2021 contributed to a 22.2% increase in net sales, primarily due to higher ethylene sales prices to Westlake per the terms of the Ethylene Sales Agreement and to third parties. The lower sales volume contributed to a 19.0% decrease in net sales in the first quarter of 2021 compared to the first quarter of 2020. The decrease in sales volumes for the first quarter of 2021 was primarily due to the force majeure events as a result of the severe winter storm that impacted OpCo's production facilities.
Gross Profit. Gross profit decreased to $87.7 million for the first quarter of 2021 from $103.5 million for the first quarter of 2020. The gross profit margin in the first quarter of 2021 was 32.7%, as compared to 41.3% for the first quarter of 2020. The first quarter 2021 gross profit margin was lower mainly due to increased feedstock and conversion costs and lower sales volumes to third parties, partially offset by higher prices for ethylene sold to Westlake and third parties compared to the first quarter of 2020.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $2.5 million, or 40.3%, to $8.7 million in the first quarter of 2021 as compared to $6.2 million in the first quarter of 2020. The increase in the first quarter of 2021 was mainly attributable to higher service costs as compared to the first quarter of 2020.
Interest Expense. Interest expense decreased by $1.8 million to $2.2 million in the first quarter of 2021 from $4.0 million in the first quarter of 2020, largely due to a lower average interest rate on debt.
Other Income, net. Other income, net in the first quarter of 2021 decreased by $0.6 million, primarily due to a decrease in interest income earned under the Investment Management Agreement as a result of lower average interest rates.
MLP Distributable Cash Flow. MLP distributable cash flow decreased by $2.1 million to $16.2 million in the first quarter of 2021 from $18.3 million in the first quarter of 2020. The decrease in the first quarter of 2021, as compared to the prior-year period, was primarily attributable to the lower earnings at OpCo resulting from the severe winter storm as well as contributions for turnaround reserves.
EBITDA. EBITDA decreased by $17.4 million to $106.6 million in the first quarter of 2021 from $124.0 million in the first quarter of 2020. The decrease, as compared to the prior-year period, was primarily due to lower sales volumes to Westlake and third parties as a result of lower production due to the severe winter storm in February 2021 and higher feedstock and conversion costs, partially offset by higher sales prices for ethylene sold to Westlake per the terms of the Ethylene Sales Agreement and to third parties, as well as the buyer deficiency fee and the Shortfall recognized in the first quarter of 2021.
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CASH FLOW DISCUSSION FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
Operating Activities
Operating activities provided cash of $155.4 million in the first three months of 2021 compared to cash provided by operating activities of $111.0 million in the first three months of 2020. The $44.4 million increase in cash flows from operating activities was mainly due to an increase in cash provided for working capital, partially offset by a decrease in income from operations during the three months ended March 31, 2021 as compared to the prior-year period. Changes in components of working capital, which we define for the purposes of this cash flow discussion as accounts receivable, net—Westlake, accounts receivable, net—third parties, inventories, prepaid expenses and other current assets less accounts payable—Westlake, accounts payable—third parties and accrued liabilities, provided cash of $51.5 million in the first three months of 2021 as compared to $8.7 million of cash used in the first three months of 2020, resulting in an overall favorable change of $60.2 million. The favorable change in working capital was mainly attributable to a favorable change in Westlake, net accounts receivable due to the receipt of the buyer deficiency fee related to the force majeure events in 2020 by the Partnership in January 2021, partially offset by unfavorable changes in accounts receivable, net—third parties, accounts payable and accrued and other liabilities.
Investing Activities
Net cash used for investing activities during the first three months of 2021 was $76.6 million as compared to net cash used for investing activities of $11.0 million in the first three months of 2020, mainly due to increased net cash used under the Investment Management Agreement in the first three months of 2021, as compared to the prior-year period. Capital expenditures during the first three months of 2021 and 2020 were primarily related to projects to improve production capacity or reduce costs, maintenance and safety and environmental projects at our facilities.
Financing Activities
Net cash used for financing activities during the first three months of 2021 was $78.7 million as compared to net cash used by financing activities of $95.8 million in the first three months of 2020. The outflows during the first three months of 2021 were related to the distribution of $62.1 million to Westlake and of $16.6 million to other unitholders by the Partnership. The cash outflows during the first three months of 2020 were related to the distribution of $79.2 million to Westlake and of $16.6 million to other unitholders by the Partnership.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Financing Arrangements
Pursuant to the terms of the ATM Agreement, entered in October 2018 and amended in February 2020, among the Partnership and various investment banks, the Partnership may offer and sell the Partnership's common units from time to time to or through the Managers, as the Partnership's sales agents or as principals, having an aggregate offering amount of up to $50.0 million (the "ATM Program"). The Partnership intends to use the net proceeds of sales of the common units, if any, for general partnership purposes, including the funding of potential drop-downs and other acquisitions. No common units had been issued under the ATM Program as of March 31, 2021.
Based on the terms of our cash distribution policy, we expect that we will distribute to our partners most of the excess cash generated by our operations. To the extent we do not generate sufficient cash flow to fund capital expenditures, we expect to fund them primarily from external sources, including borrowing directly from Westlake, as well as future issuances of equity and debt interests.
The Partnership maintains separate bank accounts, but Westlake continues to provide treasury services on our behalf under the Services and Secondment Agreement. Our sources of liquidity include cash generated from operations, the OpCo Revolver, the MLP Revolver and, if necessary and possible under then current market conditions, the issuance of additional equity interests or debt. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements and to make quarterly cash distributions. Westlake may also provide other direct and indirect financing to us from time to time, although it is not required to do so.
In order to fund non-annual turnaround expenditures, we cause OpCo to reserve an amount for turnaround costs during each twelve-month period designed to cover future turnaround activities. Each of OpCo's ethylene production facilities requires turnaround maintenance approximately every five years. By reserving additional cash annually, we intend to reduce the variability in OpCo's cash flow. Westlake's purchase price for ethylene purchased under the Ethylene Sales Agreement includes a component (adjusted annually) designed to cover, over the long term, substantially all of OpCo's turnaround expenditures.
Westlake's credit facility and various indentures do not prevent OpCo from making distributions to us.
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On May 3, 2021, the board of directors of Westlake Chemical Partners GP LLC, our general partner, approved a quarterly distribution of $0.4714 per unit payable on May 27, 2021 to unitholders of record as of May 13, 2021, which equates to a total amount of approximately $16.6 million per quarter, or approximately $66.4 million per year in aggregate, based on the number of common units outstanding on March 31, 2021. We do not have a legal or contractual obligation to pay distributions on a quarterly basis or any other basis at our minimum quarterly distribution rate or any other rate.
Capital Expenditures
Westlake has historically funded expansion capital expenditures related to Lake Charles Olefins and Calvert City Olefins. Total capital expenditures for the three months ended March 31, 2021 and 2020 were $12.7 million and $12.0 million, respectively. No funding was required by OpCo to fund capital expenditures during the three months ended March 31, 2021 and 2020. We expect that Westlake will loan additional cash to OpCo to fund its expansion capital expenditures in the future, but Westlake is under no obligation to do so.
Cash and Cash Equivalents
As of March 31, 2021, our cash and cash equivalents totaled $17.3 million. In addition, we have cash invested under the Investment Management Agreement (as described below) and a revolving credit facility with Westlake available to supplement cash if needed, as described under "Indebtedness" below.
In August 2017, the Partnership, OpCo and Westlake executed the Investment Management Agreement that authorized Westlake to invest the Partnership's and OpCo's excess cash with Westlake for a term of up to a maximum of nine months. Per the terms of the Investment Management Agreement, the Partnership earns a market return plus five basis points and Westlake provides daily availability of the invested cash to meet any liquidity needs of the Partnership or OpCo. The Partnership had $187.2 million of cash invested under the Investment Management Agreement at March 31, 2021.
Indebtedness
OpCo Revolver
In connection with the IPO, OpCo entered into a $600.0 million revolving credit facility with Westlake, as amended in August and December 2017 and March 2020 (the "OpCo Revolver") that may be used to fund growth projects and working capital needs. The OpCo Revolver is scheduled to mature on September 25, 2023. As of March 31, 2021, outstanding borrowings under the OpCo Revolver totaled $22.6 million and bore interest at the LIBOR rate plus 2.0%, which is accrued in arrears quarterly.
MLP Revolver
In 2015, we entered into a senior, unsecured revolving credit agreement with an affiliate of Westlake (the "MLP Revolver"). The MLP Revolver has a borrowing capacity of $600.0 million and is scheduled to mature in 2023. On March 29, 2019, the Partnership borrowed $123.5 million under the MLP Revolver to partially fund the purchase of an additional 4.5% interest in OpCo. On March 19, 2020, the Partnership entered into an amendment to the MLP Revolver, to extend the maturity date to March 19, 2023 and add a phase-out provision for LIBOR, which is to be replaced by an alternate benchmark rate. Borrowings under the MLP Revolver bear interest at a variable rate of either (a) LIBOR plus 2.0% or, if LIBOR is no longer available, (b) Alternate Base Rate plus 1.0%. The MLP Revolver provides that we may pay all or a portion of the interest on any borrowings in kind, in which case any such amounts would be added to the principal amount of the loan. The MLP Revolver requires that we maintain a consolidated leverage ratio of either (1) during any one-year period following certain types of acquisitions (including acquisitions of additional interests in OpCo), 5.50:1.0 or less, or (2) during any other period, 4.50:1.00 or less. The MLP Revolver also contains certain other customary covenants. The repayment of borrowings under the MLP Revolver is subject to acceleration upon the occurrence of an event of default. As of March 31, 2021, outstanding borrowings under the MLP Revolver totaled $377.1 million and bore interest at the LIBOR rate plus 2.0%, which is accrued in arrears quarterly. We intend to use the MLP Revolver to purchase additional limited partnership interests in OpCo in the future, in the event OpCo desires to sell such additional interests to us, for other acquisitions and for general corporate purposes.
Off-Balance Sheet Arrangements
None.
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FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this report are forward-looking statements. All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements can be identified by the use of words such as "believes," "intends," "may," "should," "could," "anticipates," "expects," "will" or comparable terminology, or by discussions of strategies or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Forward-looking statements relate to matters such as:
• the amount of ethane that we are able to process, which could be adversely affected by, among other things, operating difficulties;
• the volume of ethylene that we are able to sell;
• the price at which we are able to sell ethylene;
• industry market outlook, including prices and margins in third-party ethylene and co-products sales;
• widespread outbreak of an illness or any other communicable disease, or any other public health crisis, including the COVID-19 pandemic and efforts to contain its transmission;
• our plans and Westlake's plans to respond to the challenges presented by the COVID-19 epidemic, as well as the timing and deferral of the planned turnaround at OpCo's Petro 2 ethylene unit;
• the parties to whom we will sell ethylene and on what basis;
• volumes of ethylene that Westlake may purchase, in addition to the minimum commitment under the Ethylene Sales Agreement;
• timing, funding and results of capital expenditures;
• our intended quarterly distributions and the manner of making such distributions;
• our ability to meet our liquidity needs;
• timing of and amount of capital expenditures;
• the Partnership's At-the-Market program and the use of any net proceeds from any sales under that program;
• potential loans from Westlake to OpCo to fund OpCo's expansion capital expenditures in the future;
• expected mitigation of exposure to commodity price fluctuations;
• turnaround activities and the variability of OpCo's cash flow;
• receipt of any buyer deficiency fee under the Ethylene Sales Agreement;
• compliance with present and future environmental regulations and costs associated with environmentally related penalties, capital expenditures, remedial actions and proceedings, including any new laws, regulations or treaties that may come into force to limit or control carbon dioxide and other greenhouse gas emissions or to address other issues of climate change;
• our ability to receive indemnification from Westlake for environmental and other losses; and
• effects of pending legal proceedings.
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We have based these statements on assumptions and analysis in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe were appropriate in the circumstances when the statements were made. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly impact expected results, and actual future results could differ materially from those described in such statements. These statements are subject to a number of assumptions, risks and uncertainties, including those described under "Risk Factors" in the 2020 Form 10-K and the following:
• general economic and business conditions;
• the cyclical nature of the chemical industry;
• the availability, cost and volatility of raw materials and energy;
• low crude oil prices reducing the cost advantage of ethane-based ethylene producers;
• uncertainties associated with the United States and worldwide economies, including those due to political tensions and unrest in the Middle East and elsewhere;
• uncertainties associated with pandemic infectious diseases, particularly COVID-19;
• current and potential governmental regulatory actions in the United States and regulatory actions and political unrest in other countries, including environmental regulations;
• industry production capacity and operating rates;
• the supply/demand balance for our products;
• competitive products and pricing pressures;
• instability in the credit and financial markets;
• access to capital markets;
• terrorist acts;
• operating interruptions (including leaks, explosions, fires, weather-related incidents, mechanical failure, unscheduled downtime, labor difficulties, transportation interruptions, spills and releases and other environmental risks);
• changes in laws or regulations;
• technological developments;
• our ability to integrate acquired businesses;
• foreign currency exchange risks;
• our ability to implement our business strategies; and
• creditworthiness of our customers.
Many of these factors are beyond our ability to control or predict. Any of the factors, or a combination of these factors, could materially affect our future results of operations and the ultimate accuracy of the forward-looking statements. These forward-looking statements are not guarantees of our future performance, and our actual results and future developments may differ materially from those projected in the forward-looking statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels. Every forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements.
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Table of Contents
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