Earnings Call Transcript - CLMT Q4 2021

Operator, Operator

Thank you for standing by and welcome to the Calumet Specialty Products Partners Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. As a reminder, today's program may be recorded. And now, I'd like to introduce your host for today's program, Brad McMurray, Head of Investor Relations. Please go ahead, sir.

Brad McMurray, Head of Investor Relations

Good morning. Thank you for joining us today for our fourth quarter and full year 2021 earnings call. With me on today's call are Steve Mawer, CEO; Todd Borgmann, CFO; Bruce Fleming, EVP of Montana/Renewables and Corporate Development; Scott Obermeier, EVP of Specialty Products and Solutions; and Marc Lawn, EVP of Performance Brands. Before we proceed, I will remind everyone that during this call, we may provide various forward-looking statements. Please refer to the Partnership's press release that was issued this morning, as well as our latest filings with the SEC for a list of factors that may affect our actual results and cause them to differ from our expectations. You may now download the slides that accompany the remarks made on today's conference call which can be accessed in the Investor Relations section of our website, www.calumetspecialty.com. A replay of this call will be available on the website later today. With that, I'll pass the call to Steve.

Steve Mawer, CEO

Thanks, Brad. Let's start by going to Slide 3. Since our last earnings call on November 5, 112 days ago, our team has made very substantial strategic progress. In fact, we describe these 112 days as a milestone period in Calumet's transformation. We closed on the total commitment of $675 million of external capital injected into the company, as well as an extension of our ABL. These well-received and well-timed capital markets transactions mean that our team can focus on delivering our vision of standing up and separating out two best-of-breed businesses, our leading Specialty Products business and, of course, Montana Renewables. Internally, we refer to these milestone accomplishments as Recapitalization 1.0, setting the stage for us to control the timeline and sequencing of the separation and deleveraging of these businesses. As we've mentioned before, we still believe that the most value-creating move for our unitholders is probably for Montana Renewables to be a publicly-traded pure-play renewables company and we continue to progress more than one potential path to deliver that price to our unitholders. On Slide 4, we recap some of our actions. We formed and capitalized Montana Renewables and shortly we'll give you more of an update on where we are with what has become widely known as MRL. We addressed our two most immediate bond holes giving us some very substantial flexibility to address future capital markets opportunities from a position of no urgency. We also started the process of deleveraging the parent. Our business environment continues to improve, although there clearly is current geopolitical uncertainty. With that improvement, stronger expectations of cash flow generation allow us to start to edge our way into selective growth reinvestment in specialties. We'll talk about outlook and growth towards the end. Yesterday, we announced some role changes in our leadership team and we'll touch on that later as well. Slide 5 is our Montana Renewables business update. Strategically, the objectives remain unchanged. One, stand up a leading renewables business. Two, ultimately plan to take public as a pure-play. Three, use some of the value of MRL to delever the parent. Stepping down from the highly strategic to the specific elements of standing up MRL, we are more than happy with our overall progress. On the project, construction, sourcing, etcetera, all continued to track as expected. We have a clear line of sight to our total feedstock supply and a layering in contracts across a range of different materials and time periods to get that right mix of security and optionality that we think should maximize value. Within that procurement strategy, we were favorably surprised with the amount of lower CI feeds that we appear to be able to source locally. Unlike others, we have not advertised low CI feeds as our core advantage and to be honest, we wouldn't be surprised if, in large competitive markets such as the NOLA area, the feed prices tend to gravitate to what we would term CI parity. We believe our core competitive advantages are the everlasting ones of low capital intensity and superior allocation. But if we're going to have low CI feeds in the mix, so much the better. Product placement was several times oversubscribed with strong uptake of interest and we're completing those contracts as well. As we got deeper and deeper into product placement and understanding our customers' needs, we've decided to accelerate our focus on renewable kerosene and have made engineering changes to be able to produce 2,000 barrels a day of RK right from start-up. Yet again, our unique position fuels our competitive advantage in renewable kerosene, as we can and will access both the well-known and very attractive sustainable aviation fuel market but also the less well-known and much less attractive but very real renewable Arctic diesel market. Slide 6 is the results overview which I will cover and then hand over to Todd to take you into the segments. Q4 adjusted EBITDA was $24.6 million, full year EBITDA was $110.3 million. As we've discussed before, the externalities of Winter Storm Uri and the global supply chain were the two themes that dominated our results for the year. Liquidity is strong with us closing the year revolver undrawn and $334 million available. So with that, I'll hand you over to Todd for a deeper dive.

Todd Borgmann, CFO

Thanks, Steve. Let's start with our Specialty Products and Solutions segment on Slide 8. In the fourth quarter, we generated $25.5 million of adjusted EBITDA, compared to $46.3 million in the third quarter. The largest driver of the variance was the reduction of material margin as we saw some specialty margin easing from the all-time highs we saw last quarter. Specialty margins were quite strong compared to the normal winter period and we saw a little seasonality return to this business late in the quarter. Similarly, our fuel and asphalt margins experienced the usual winter margin squeeze as the market switched to winter formulation. That being said, December's average Gulf Coast 2-1-1 crack spread was nearly double the level that we ended 2020 with, and as the fuels margin outlook trends positive, we are back to that normal state where the ability to produce our own specialty feedstocks in Northwest Louisiana while producing fuels' byproducts is the meaningful competitive advantage. We expect this trend to continue given the incredibly tight supply of global energy and the cost advantage that domestic producers have relative to the price-setting European and Asian refiners given their cost of natural gas and ultimately, hydrogen. This domestic advantage is also very visible in the specialty markets. Earlier I mentioned that we have seen some specialty margin easing from all-time record 2021 levels and we expect that to continue. But at the same time, we expect the high global hydrogen cost to strengthen export markets and provide margin support compared to historical norms. On a full year basis, Specialty Products and Solutions generated $104.6 million in adjusted EBITDA, down from $151 million in 2020. We've talked a lot about Winter Storm Uri over the past year and the estimated $70 million of damage this storm did was really the event that shadowed over the whole year in this segment. We are glad to have that fully behind us. Let's move to Performance Brands on Slide 10. We generated $3.8 million in adjusted EBITDA for the quarter, down from $6.8 million in the third quarter. For the full year, Performance Brands generated $33.9 million in adjusted EBITDA, compared to $61 million in 2020. If we summarize the results, there are three key items that define Performance Brands' 2021 performance. First, raw material and packaging cost inflation outpaced the rate at which we could pass through price increases, particularly in our consumer channels. This lag is a phenomenon that will come and go but it will balance in the long run. You'll remember it helped us to the tune of $8 million in 2020 and that reversed in 2021. Second and most impactful was the global supply chain crisis. In our other segments, we were able to temper the impact of supply chain but it hit Performance Brands hard. Early in the year, it impacted us across the board as we struggled to get anything from labels to steel cans. The team worked through the majority of the broad systemic challenges and the second half of the year was headlined by two specific matters. Chemtool, one of the largest grease suppliers in the business and our largest grease supplier, suffered a catastrophic loss of their entire facility and Lubrizol, our largest additives supplier, has had us on force majeure for over a year now. We've discussed our quality standards before and these high-performance specifications caused us to be very cautious about changing elements of our formulations and it takes us longer than others to do so. We're happy to say that we now believe enough high-quality alternative feedstocks have been gathered that we expect to meet demand from this point forward. It is still a bit uncertain whether we'll receive enough supply to meaningfully eat into our order backlog, but we do expect to start building, which is a welcome change. These alternatives are approximately 30% more expensive than our typical supply. So while we're thrilled to fulfill more customer demand, our margins will be challenged until supply is back to normal. I've mentioned cost inflation and supply chain issues and the third highlight is a positive one. Demand was exceptional in 2021 and it continues to be the case. Given our supply challenges, we've been forced to measure demand growth through our order backlog, instead of the shipping log, and that key reached $34 million by the end of the year which is three times higher than normal historical levels. One example, despite the year's challenges, TruFuel volumes grew year-over-year and in December, the product line set an all-time sales order record. You'll remember that, to meet growing demand for larger volume containers, we introduced the 2.1-gallon offering in 2021 and we're happy to see it performing. Looking forward, we have some challenges remaining early in the year but we do expect to reach normalcy within 2022. We've seen costs easing and our margins continue to catch up. Steel costs have rescinded and feedstock costs have plateaued. That being said, we're cognizant of the current geopolitical environment's potential risk of a new round of cost escalation. On availability of supply, Lubrizol recently notified us that our force majeure is being extended through June of 2022. Now that we have introduced replacements, we expect availability to continually improve but it looks like margins will be somewhat squeezed through the first half of the year. Last and excitingly, we expect volumes to meaningfully grow as we believe we can now keep up with demand. On Slide 12, you'll see that in Montana, we delivered $9.1 million of adjusted EBITDA in the fourth quarter versus $24.4 million in the third quarter and $6.4 million in 4Q of 2020. We experienced normal seasonality in Great Falls as gasoline and asphalt demand in the Rocky Mountains is typically low in the winter. Further, we previously reported a hydrogen unit outage during the month of November that led to unplanned downtime for the plant. We brought both the hydrogen unit and the facility back to full operations in December and have been running well ever since. Before I turn the call back over to you, Steve, I just wanted to say that it's been a pleasure being your CFO. I know we are both grateful to so many: our analysts, investors, vendors, customers, and ultimately, the great Calumet employees who have made the past couple of years at Calumet a true success. And Steve, while I know you're not going anywhere, I think I can speak for everyone when I say thank you for your leadership and commitment to Calumet as our CEO. And with that, I'll turn the call back over to you to talk 2022 outlook.

Steve Mawer, CEO

Thank you, Todd, and thank you for the very kind words. I'll briefly touch on the transition announcement we issued yesterday, one that has been well received by major unitholders and key partners, and then I'll conclude with our outlook. The most consequential transition event is Fred's decision to retire from our Board as Chairman. Fred has been a wonderful leader, mentor, and friend to many of us here at Calumet. He co-founded the company, so naturally, we'll miss his perspective, his experience, and his expertise. Heritage has been very supportive of management and of Calumet through the years. So firstly, I wish Fred all the best and thank him from our entire Calumet team. Thoughtful and planned transitions are important to Fred, and we've approached this one in exactly that manner. Secondly, I just want to reiterate that this is the same management team, although roles are changing. I look forward to continuing in an executive capacity as well as Chair of the Board. We have a great group of directors and a great management team running our business. And third, Todd's going to do just great. It's going to be an easy and smooth transition. He knows as much about Calumet as anybody in the company. He has been here a long time and has deep experience across basically every one of our businesses. He's sharp, humble, and he loves this company. He's going to be an excellent CEO and I have every confidence in him to lead us into the future. I would add that our transition is not just about Todd, it's about the confidence and belief in our whole team. The last two years have been pretty challenging for Calumet, and it takes a strong and close team to circle the wagons, pitching together and emerge from all the challenges of the pandemic with a transformational vision, one that's created a tremendous amount of unitholder value and should be able to continue to create substantially more. We've got about 1,500 people here at Calumet and I'm proud to have had the chance to work with each and every one, everyone committed to staying the course and rising to the challenge, no matter how daunting it might appear. Okay. In conclusion on Slide 13, I wanted to touch on our outlook for this year and how Calumet is thinking about positioning ourselves for continued growth and success. First, let's touch on our core specialties businesses. As you know, that's comprised of Specialty Products and Solutions and Performance Brands. In SPS and you've heard me say it before, through most of the business cycle, we believe we're competitively advantaged by producing our own feedstocks as opposed to purchasing them. And that is definitely very true in this current market. So while Todd mentioned that record specialty margins have eased, product inventories are shockingly low, demand is solid, and we definitely appear to be setting the stage for solid fuels margin contributions that will at least balance, if not outweigh the easing in specialty margins. In Performance Brands, demand continues to be strong and we believe that if supply chains recover, we will generate even more value in this business. I'm not going to say we are out of the woods on supply chain issues yet but we have had quite a lot of promising signs. I told you about where we are today with MRL, it's a truly superior RD project. We believe the most value to be unlocked for Calumet unitholders is the path for MRL into the public markets and we will continue to position that business accordingly. We can then use some of that unlocked value to delever the Calumet parent, giving our specialties business a competitive cost of capital and the appropriate leverage to return to growth and reinvestment moat for what is an excellent business. And despite geopolitical uncertainty, we think 2022 has the potential to be a good year for Calumet, one that should generate enough earnings and cash flow to give us the option to begin to selectively invest in growth again. We've budgeted about $25 million or so for improvements to modernize, upgrade, optimize and further integrate our plants. It's a basket of small capital projects that are easy to execute and have high returns. So with that, I'd like to turn the call over to the operator to open up the line for Q&A.

Operator, Operator

Our first question comes from the line of Manav Gupta from Credit Suisse. Your question, please.

Manav Gupta, Analyst

Hey, guys. A quick question here. You seem to have compressed the timeline of start-up of Montana Renewables. As I understand, this is an economic decision, the margins are extremely good and you want to capitalize on those margins. So I'm just trying to understand if you can help us quantify a little bit what would have been the opportunity cost had you taken the decision to start the facility versus now that the margins are really good, you are choosing to continue to operate it as a refinery and then compress the timeline of start-up, so you'll start everything together once the pre-treatment unit is also online?

Bruce Fleming, EVP of Montana/Renewables and Corporate Development

Manav, it's Bruce. I'll take a run at that. That might have been about six questions, so come back to me if I don't cover it all. The compression is, I think you correctly captured. It's very interesting because we think we are de-risking both of the businesses there by staying online for the summer asphalt season and capturing that. We're actually supporting the site economics overall. And then on Montana Renewables, what we had initially envisioned was bringing on the hydrocracker early. That makes more sense if we bring it on coincident with our pre-treater and we're continuing to raise our aspirations for the benefit of the feedstock gathering strategy and the low CI feeds that seem to be coming our way. So, while we haven't disclosed that, we suspect that we're going to do better than what we've advertised.

Manav Gupta, Analyst

Thank you for taking my questions. I'll turn it over.

Operator, Operator

Thank you. Our next question comes from the line of Carly Davenport from Goldman Sachs. Your question, please.

Carly Davenport, Analyst

Hey, good morning. Thanks for taking the questions today. I just wanted to start on the 2022 capital spending guidance that you provided. Are you able to provide a bit more granularity in terms of the allocations of capital across the segments and maybe, including some of the projects you're considering for the discretionary CapEx? And does the overall budget include all of the remaining spend to get renewable diesel up and running?

Todd Borgmann, CFO

Carly, this is Todd. In terms of capital expenditures, we have a range of $115 million to $135 million for the year, divided into three categories. We consider a steady-state maintenance cost of about $65 million, though this can vary due to turnaround activities. This year has seen higher than usual turnaround spending, with the largest portion going towards the full plant turnaround in Montana, which is a project we've been planning for several years. This involves taking the full plant offline to convert the hydrocracker to renewable diesel. Additionally, we have some smaller turnarounds in our specialty system that will incur costs but won't significantly affect sales. I would estimate that these turnarounds represent a $20 million to $30 million investment. We also have a discretionary spending range of $20 million to $30 million for high-return modernization projects that Steve mentioned in the script. Examples include investments in Shreveport and Cotton Valley for optimization, improving reliability, and utility upgrades like electrical and integration work. We're enhancing our naphthenic crude oil supply chain to accommodate a wider variety of feedstocks and making improvements to our Shreveport crude tanks to better blend specialty crudes. We're also automating processes to increase white oil production from Karns City, where we restarted the plant last year to meet rising demand. These projects are generally low-risk, smaller investments that we believe will yield a high rate of return, typically in a two-year payback timeframe.

Steve Mawer, CEO

A strong optimization focus.

Carly Davenport, Analyst

And then, sorry, just to clarify on that. So, you mentioned the Montana full plant turnaround is included but the renewable diesel, like spend on pre-treatment would not be included in the one that...

Todd Borgmann, CFO

That's not included in the range, no.

Carly Davenport, Analyst

And then, the follow-up is just kind of a housekeeping item around G&A costs during the quarter came in a bit higher than where we had anticipated. Is there anything that you call out as kind of one-time in nature? Or is that kind of the type of run rate we should be thinking about going forward?

Todd Borgmann, CFO

No, I think, in general, we've talked about an $80 million-type run rate for that corporate segment. And I think that's probably still the right guidance going forward.

Carly Davenport, Analyst

Great. Appreciate the color.

Operator, Operator

Thank you. Our next question comes from the line of Amit Dayal from H.C. Wainwright. Your question, please.

Amit Dayal, Analyst

Thank you. Good morning, everyone. Thank you for taking my questions. Just with respect to the MRL going public decision, is this concrete? And if it is, can you give us potential timing for this?

Todd Borgmann, CFO

I'll take it. This is Todd. I wouldn't say anything is concrete. We're still evaluating a number of options right now. We believe that ultimately, this business is best suited for the public market. You may have noticed some discussions surrounding SPAC markets, and significant changes have occurred in that space. One notable change is that the market has split between genuine businesses and those based solely on financials, which works to our advantage. Additionally, this market is becoming less reliable as redemptions increase, which is fine for us because MRL doesn't require much capital. Lastly, the costs associated with pursuing a SPAC have decreased compared to a traditional IPO. Therefore, we think it's wise to expect limited capital from a SPAC trust. When you assess the cost differences between a traditional IPO and a SPAC, you must also consider the value of accessing the public markets more swiftly. We believe speed is valuable to Calumet, and the public markets offer significant benefit, albeit not unlimited. Accelerating the deleveraging of our specialties business and establishing an independent public MRL are both central to our vision. We take the public market pathway seriously and intend to reach that goal. It’s a matter of timing, whether through a traditional IPO, a quicker SPAC route, or possibly a blend of private equity followed by a public listing later on. I hope that provides some clarity on our options.

Steve Mawer, CEO

Yes, this is Steve. Let me reframe it. Our base case is that this is likely a highly IPOable business in about 18 months, and it will be operational by then. It would be straightforward to go public at that time. In the meantime, however, there's a chance we could accelerate the process. As Todd mentioned, SPACs have become a viable option due to changes in how they function. If we have the necessary capital, pursuing a SPAC would primarily be about accelerating our entry into the market rather than raising capital, making redemptions a secondary concern. The Oaktree transaction is clearly aimed at supporting this direction. Additionally, there may be private placements during the process; they might not necessarily have to be with private equity but could involve strategic partners. We have the IPO on our horizon and additional avenues to explore if we find it beneficial to speed things up.

Amit Dayal, Analyst

Understood. Thank you for that. That helps us think about the optionality around this asset. And then just staying on MRL, with respect to feedstock, I mean, I'm reading between the lines. I guess, there is some feedstock flexibility over here. What is the go-to feedstock you're targeting near-term? And then what are the other options that you have with respect to this?

Bruce Fleming, EVP of Montana/Renewables and Corporate Development

Amit, it's Bruce again. The feedstock slate is optimized for our local gathering and we've got a completely different opportunity set than, for example, the Gulf Coast industry. We believe that some of the historical cheap, attractive feedstocks are going to come up, they're going to arb into some sort of CI parity in the large markets and that's going to have an impact on trade flows. So, we've got a pretty good global balance than a North American balance than a microbalance around us. And based on all of that, we're going to run a lot of things. It's kind of like a large crude oil refinery that's got access to 400 different crudes. If you think about it that way, it's going to be a very dynamic price environment. There are going to be opportunities for feedstock sellers that are much, much better coming to us than what they're doing today and all of that plays off of our feedstock pre-treatment unit. It's a next-generation technology and it can run any triglyceride feedstock from anywhere in the world.

Amit Dayal, Analyst

Just one last one for me. With respect to the Performance Brands, the $34 million in backlog for this segment, can you give us some color on when this is expected to be delivered by? Is it like next one or two quarters or is it slowly throughout the year?

Marc Lawn, EVP of Performance Brands

Amit, it's Marc Lawn. So yes, sort of bringing together some of the things that Todd and Steve referenced during the call. We now believe that based on line of sight that we've got the raw materials coming in to help us to start eating into that backlog, as we would expect that to be going down from here. The costs are still slightly high because we're having to go and source material that we haven't planned for originally as mentioned. So, we're still somewhat in recovery mode on that. And then the unknown quantity within all of this and I know both Steve and Todd mentioned this as well is the geopolitical environment that we operate in. All things being equal, we would expect that to be coming down to a normalized level by the end of the first half but there is still that element of uncertainty. That's what we're planning towards and we'll continue to put the best endeavors behind it.

Amit Dayal, Analyst

Okay. Thank you for that. That's all I have guys. Appreciate it.

Operator, Operator

Thank you. Our next question comes from the line of Jason Gabelman from Cowen. Your question, please.

Jason Gabelman, Analyst

Hey guys, thanks for taking my questions. I wanted to first ask about the specialties business. Can you remind us about the competitive advantages in SPS compared to the rest of the market, particularly regarding the integration you have in your Louisiana footprint? Can you also clarify where the competition sources their base oil feed from, what the prices look like, and how that gives Calumet a competitive edge in that business?

Scott Obermeier, EVP of Specialty Products and Solutions

Jason, Scott Obermeier here. Todd can chime in as well, but for some context, when we consider Northwest Louisiana, we have backward integration in the boiling crude. Many of the specialty companies source raw materials further down the supply chain, such as VGO or other feedstocks. In our situation, we have the flexibility to go all the way back to crude, which allows us to control quality and adjust our molecules based on market and customer demand. This backward integration gives us a competitive edge on the front end.

Todd Borgmann, CFO

Yes, this is Todd. I'll jump in a bit. The competition varies depending on the specific area we are discussing. For context, our Northwest Louisiana complex includes Shreveport, Cotton Valley, and Princeton, where we produce naphthenic and paraffinic lubricants, as well as aliphatic solvents. We face competitors in the solvents market who purchase distillate, which means they are paying diesel prices to create solvents, while we use crude prices to make our solvents and then send the leftover materials to Shreveport for fuel production. In the lubricants sector, some competitors buy crude oil as we do, while others purchase VGO, which comes at a premium compared to crude for additional fractionation and treatment. I just wanted to emphasize that the competitive landscape depends on the specific business segment. Overall, as a network, we can optimize input costs by going upstream as needed, and we also have the flexibility to optimize operations between plants since these facilities are closely connected and within a short trucking distance of one another. Does that clarify things?

Jason Gabelman, Analyst

Yes. I have a few clarifying questions regarding the Montana Renewables project. First, you mentioned enhancing the flexibility to produce renewable kerosene. Does this mean an increase in the project's capital requirements? Secondly, you referred to sourcing more locally available feedstock. Considering you've noted a $65 million EBITDA benefit from a logistics advantage, do you expect this to increase now that you can source more local feedstock? Lastly, regarding monetization opportunities, I appreciate the insights on IPOs and potential SPACs. However, I would like to know if there is interest in the market from other renewable diesel producers who might be looking to acquire a company like yours to expand their assets.

Bruce Fleming, EVP of Montana/Renewables and Corporate Development

It's Bruce. I'll address those points in reverse order. Last March, we informed our investors and anyone interested that we would pursue this direction, and we conducted 100 phone calls over 100 days to explore various possibilities. As we narrowed our focus, we developed a clear perspective on our competitive edge, which is driven by location with a $65 million advantage in variable logistics costs, as well as capital since we have the necessary assets in place. It's important to note that our capital spending is primarily for logistics separation rather than the RD production itself. Most of our expenditures are on relatively routine items like technology, lines, and rail racks. One notable project is our renewable hydrogen plant, which we are quite proud of, along with the next-generation pre-treater. As all these elements come together, we're looking to slightly increase capital investments for oil movement and segregation and for a modest rise in hydrogen production, without signaling a major shift, but rather opportunistically responding to offtaker demand. Regarding monetization, it's all interconnected. A complementary operating partner could create synergies across multiple plants, and the closer the plant's location to us, the greater the potential synergies, as has been demonstrated in various industries. We're not overlooking that opportunity, and I'll stop there.

Operator, Operator

Does that answer your questions?

Jason Gabelman, Analyst

Yes, that was great. Thanks.

Operator, Operator

Thank you. Our next question comes from the line of Gregg Brody from Bank of America. Your question, please.

Gregg Brody, Analyst

Hey, good morning, guys. Congrats on all the promotions over there. And Steve, I'll miss you on the call. Todd, looking forward to heading into my Twitter feeds. So, first question for you. I think Brad said something around about a month ago, about a proposed financing in the muni market potentially. I know it's early stages but I'm curious how that fits into your capital raising program? And there was some number in the press release, etcetera, I think $550 million, that seems large. So what do you think about using that for?

Bruce Fleming, EVP of Montana/Renewables and Corporate Development

Gregg, it's Bruce. I'll let Todd discuss some of the details because it's quite interesting and he's leading that effort. Let's take a step back. Steve reminded everyone that we raised $675 million in capital, which we refer to as Recapitalization 1.0 in connection with the Montana Renewables initiative, but we're still progressing. We've indicated an enterprise value for that business in our previous public materials, which is estimated to be between low-2 billion to low-4 billion. Considering this, the initial capitalization from our partnership with Oaktree last fall has turned out to be very beneficial for us and resembles a mini-bond ladder. We have a three-year maturity of $300 million and a 10-year maturity of $50 million from Stonebriar. We want to enhance that bond ladder by adding another component. We have some solid ideas for that, and the muni option presents a longer maturity. The $550 million mentioned includes a substantial expansion in our business plan for 2024 with further emphasis on SAF yield. So, with all these factors in play, there are many elements for Todd to address, and I'll ask him to elaborate since it's quite fascinating and the team is making significant progress. The focus goes beyond the muni, but you correctly noted the $550 million.

Todd Borgmann, CFO

Yes, Bruce was correct. The $550 million is somewhat of a placeholder. When dealing with the municipal tax-exempt bond, the process involves filing an inducement resolution to assess how much of our supplies and our plant may qualify for potential tax-exempt financing. This process spans several years to evaluate potential future spending as well. I view it more as a placeholder than anything definitive. It serves as an option that allows us to state that any qualifying expenditure for tax-exempt financing from December onwards over the next few years could utilize municipal bond financing. That's the essence of the $550 million. It does not represent a commitment from any party involved, whether the municipality, us, or others. It's a placeholder that we will refine over time.

Gregg Brody, Analyst

I know there was a resolution of intent. Is there more you need to go through to be able to take advantage of this opportunity? Or is that something that's available in the short-term?

Todd Borgmann, CFO

Yes, there are a couple of different steps. The inducement resolution was the first. The second is, how much of our spend qualifies and that's a combination of what percentage of your feed is solid waste feed, wastewater-type investment, those types of things and so that's the second. And then the third phase is, understanding how much volume caps are actually available from the state. So it's not just an unlimited supply. The municipality has to allocate their volume cap every year and there is still some work to do on understanding how much of that may be available to us. And again, that can be tapped over a multi-year period. So, that's a little bit of the number we're looking forward like Bruce said, potential future SAF investments, you name it, that this could be an option for.

Gregg Brody, Analyst

Got it. And you could raise it on a project financing basis where the facility has gone online, it's more just on the forecast?

Todd Borgmann, CFO

Yes. We think you could raise it as the project does not have to be online.

Gregg Brody, Analyst

You mentioned the potential to source new supply for your Performance Brand business, which should help you meet demand. However, you were uncertain about whether this would enhance your margins. I'm trying to understand if increasing volumes could lead to an incremental margin benefit, suggesting that as you grow, your margins might improve simply due to higher volume being processed.

Todd Borgmann, CFO

So, let me kind of clarify a bit and then Marc jump in with some color here. So, it will improve overall margin. These are incredibly high-margin products. So, the margin may be a little bit lower but the fundamental point is, 'Hey, we can keep up with volume'. And I think you hit the nail on the head there, Gregg. The point is, we want to be able to grow volume. We have the demand. Now that we have supply, we hope to be able to keep up with the demand. Now, we may make 35% margin on that incremental sale instead of a 40% margin, just throwing the numbers out there to represent but it's still a very high-margin business. I'm just saying on a unit relative to maybe a 2020 time period, margins would be squeezed a little bit as we add kind of higher cost alternative feedstocks.

Gregg Brody, Analyst

Got it. So is it fair to say about half of the supply side issues that have hurt your margins here are addressed with this sourcing agreement?

Marc Lawn, EVP of Performance Brands

We believe that we have addressed all current requirements. To provide some context, while overall volume increased in 2021, we are tracking a double-digit growth in the first half of the year. This information can help gauge the impact of supply chain challenges and our expectations for normal supply in 2022, as you suggested. It's important to consider the geopolitical factors that we need to be aware of as well. Our goal remains to clear most of the backlog by the end of the first half of the year. As Todd mentioned, we are still in cost recovery mode, but we expect volumes to return and demonstrate the growth trajectory we had previously forecasted.

Gregg Brody, Analyst

Okay. And then separately, I know you are able to pass through much of the cost inflation, but I am curious if you are noticing any significant impacts on your business due to inflation.

Marc Lawn, EVP of Performance Brands

What we're currently observing in relation to inflation is that everything appears to be stabilizing. Consequently, we anticipate that the cost recovery we previously discussed will progress. However, an uncertain element, which relates to a point Todd mentioned earlier, is that current forecasts indicate a potential decline in prices based on various indices. Despite this ambiguity, we believe we are making progress, and the cost recovery process will eventually align.

Steve Mawer, CEO

Yes, this is Steve. I mean, if I could add, I mean, I think simply put, until what happened tragically in Ukraine a couple of days ago, we would have felt pretty good that things have topped out and that at least across the markets that we access the kind of inflationary forces have topped out. Now, who knows, right, as of Wednesday, or whenever it was.

Gregg Brody, Analyst

Got it. Have you been able to manage the COVID issues in the first quarter with people not being able to show up to work? How is...

Steve Mawer, CEO

Yes, things are progressing well. Like everyone else in the industry, we faced challenges with trucking in the first few weeks of January, as it felt like the entire trucking sector was impacted by COVID. However, both Scott's and Marc's teams did an excellent job adapting, so our volumes weren't significantly affected. We’ve seen COVID cases decline significantly, with only one reported case in Calumet earlier this week. We're feeling optimistic and pleased overall, especially as we look to ease COVID protocols during the turnaround, which means we'll have more people on site. Delaying construction to avoid winter impacts was a smart move, possibly more beneficial than we initially thought, as it allows for more relaxed COVID measures. Of course, we will adhere to CDC guidelines and local regulations, but it seems COVID is now behind us.

Gregg Brody, Analyst

And then last one, it wouldn't be a call with me on it, if I didn't ask you this, your thoughts on RINs and any insights you might have on developments that are worth pointing out?

Bruce Fleming, EVP of Montana/Renewables and Corporate Development

Gregg, it's Bruce. I put the Corporate Dev hat on for a second, I'll set the Montana Renewables hat down. So the EPA's public comment period closed earlier this month and they're off digesting all of that. There are a whole bunch of, a thicket of conflicting legal activities all over the place and they're going to have to pick their way through that. They're under court orders to answer certain questions by certain dates. And so, I think the first half of this year is going to bring more clarity at the agency level. We're sympathetic for the struggle they have trying to manage all of these conflicting stakeholder groups. That sets up the thing that may be should be more interesting to all of us which is the congressional renewable volume statute is going to sunset. And so, we are at the early stages of a lot of conversations with legislators, Senate Committee on the environment held a hearing, I would direct your attention to the transcripts of that about two weeks ago and we think there's going to be a lot of bipartisan support to help the agency to norm these things. And so, we're optimistic this year.

Gregg Brody, Analyst

That's great. Thanks, again, for the time guys. And enjoy your weekend.

Steve Mawer, CEO

Thanks, Gregg.

Bruce Fleming, EVP of Montana/Renewables and Corporate Development

Thanks, Gregg.

Operator, Operator

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Steve Mawer for any further remarks.

Steve Mawer, CEO

Well, thank you very much for joining in on the call. We really appreciate it. Really appreciate your support and warm over the last two years. This team has created a tremendous amount of unitholder value. We clearly see the potential to stay with our vision and execution here and create a lot more using the same team in different roles. So, we are excited and want to wish you a great weekend. Thank you very much.

Operator, Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.