CVR Refining Seeks $520 Million in Initial Public Offering

CVR Refining LP, the U.S. oil refiner controlled by billionaire investor Carl Icahn, increased the fundraising target for its initial public offering 73 percent to as much as $520 million.

CVR Refining will offer 20 million units for $24 to $26 each, the Sugar Land, Texas-based partnership said in a filing with the U.S. Securities and Exchange Commission today. The offering values the company at as much as $3.84 billion, according to Bloomberg calculations. Gross proceeds may reach $598 million if banks underwriting the sale exercise options to buy another 3 million shares, according to the filing.

CVR Energy Inc. announced plans Oct. 1 to put its refineries into a master-limited partnership and sell units, after failing to find a buyer for the plants. Icahn Enterprises LP, which took control of CVR Energy last year, said it may buy as much as $100 million of the refining units, according to the filing. Master-limited partnerships don’t pay corporate income tax, leaving more cash for payments to holders.

“These energy limited partnerships are all about repackaging assets in a tax-efficient structure so the limited partnership can pay out a fatter yield,” said Joseph Cornell, an analyst for Spin-Off Advisors LLC in Chicago, who rates CVR Energy shares at hold. “Retail investors are hungry for yield and bid them up.”

CVR Refining owns a 115,000 barrel-a-day refinery in Coffeyville, Kansas, and a 70,000 barrel-a-day plant in Wynnewood, Oklahoma, as well as oil pipelines, tanks and a fuel-sales business, according to the filing. In October, it estimated gross proceeds of the offering at $300 million.

Partnership Payments

CVR Energy will own 86 percent of the partnership and control it through its general partner after the IPO, according to a statement today. The company also controls CVR Partners LP, a partnership that makes fertilizer.

Master-limited partnerships that make regular distributions have been used by pipeline owners including Kinder Morgan Inc. and Williams Cos. to raise cash and retain control of businesses.

While pipelines harvest cash from standard fees on shipping volumes, refiner profit depends on the margin between the cost of crude and the price of refined fuels such as diesel and gasoline. Based on U.S. benchmark oil prices, the so-called crack spread ranged from $18.82 to $36.97 a barrel last year.

CVR Refining’s “cash distributions, if any, will not be stable,” according to today’s filing. CVR Energy rose 5.6 percent to $49.26 at the close in New York. The shares have more than doubled in the past year.

‘Trust Me’

“It puts the limited partnership investors in a ‘trust me’ position,” Cornell said in an e-mail.

Proceeds from the unit sale will be used to buy back $255 million of debt and fund some maintenance and equipment expenses through 2014, according to the filing.

Credit Suisse Group AG, Citigroup Inc., Barclays Plc, UBS AG and Jefferies Group Inc. are handling the sale, according to the statement.

The shares will trade under the symbol CVRR on the New York Stock Exchange.

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