Calumet Q3 2026 Earnings Call Transcript

Calumet (NASDAQ:CLMT) reported third-quarter financial results on Friday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Calumet Inc. reported an exceptional third quarter with $347 million in adjusted EBITDA, driven by strong performance in both specialties and renewables segments.

The company retired approximately $265 million of debt in the last four months, reducing annual cash interest by $26 million, and aims to continue this deleveraging trend.

Montana Renewables delivered a record $80 million in adjusted EBITDA, with strategic expansions underway to increase SAF production and improve operational efficiency.

The company’s specialties segment achieved $248 million in adjusted EBITDA, benefiting from strong demand and limited global supply, and completed a major turnaround at the Shreveport facility.

Calumet’s leverage ratio improved significantly to approximately 3 times, with a focus on reducing high-cost debt and enhancing shareholder value.

Management highlighted the resilience of market demand and the strategic advantage of domestic crude supply amidst global supply constraints.

The company announced an amended agreement with Warburg Pincus, providing financial flexibility and supporting the Montana Renewables expansion with a $30 million annual lease payment to CMR.

Calumet plans to use cash generated from operations to continue reducing high-cost debt, with a focus on maintaining strategic flexibility and maximizing shareholder value.

Full Transcript

OPERATOR

Good day and welcome to the Calumet Inc. Third Quarter 2026 Financial Results Conference Call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded.

I would now like to turn the conference over to John Kampa, Investor Relations for Calumet. Please go ahead.

John Kampa (Investor Relations)

Thank you, Keith. Good morning, everyone, and welcome to Calumet’s third quarter 2026 earnings call. As a reminder, this conference is being recorded. With me on today’s call are Todd Borgman, CEO; David Lunan, EVP and Chief Financial Officer; Bruce Fleming, EVP, MT Renewables and Corporate Development; and Scott Obermeyer, President, Specialties. You may now download the slides that accompany the remarks made on today’s conference call, which can be accessed in the IR section of our website at calumet.com.

Also, a webcast replay of this call will be available on our site within a few hours. Turning to the presentation on slide 2, you can find our cautionary statements. I’d like to remind everyone that during this call we may provide various forward-looking statements. Please refer to our 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. As we turn to slide 3, I’ll now pass the call to Todd.

Todd Borgman (Chief Executive Officer)

Thanks, John. Good morning all and welcome to today’s call. The third quarter was an exceptional one for Calumet. The company generated $347 million of adjusted EBITDA with tax attributes and our deleveraging and growth strategy is accelerating by years. Both our specialties and renewables businesses are producing stellar results at the same time, anchored by $248 million of adjusted EBITDA in our Specialty Products and Solutions segment and a record $80 million at Montana Renewables in its first full quarter of operations since the set 2 RVO was set earlier this year.

The market gave our industry an opportunity this quarter and we’re seeing years of positioning allowing us to make the most of it. An integrated specialty system built on advantaged crude, domestic crude and world-class customers. A renewable platform that’s now ramping at the right time. Continued demonstration of our industry-leading commercial excellence platform and a growing culture of operational reliability that’s both increasingly evident in our results and also provides a real opportunity to further extend our performance.

And financially we’re converting these results into permanent value. In the past four months, Calumet’s retired roughly $265 million of debt, saving approximately $26 million of annual cash interest. And we expect to continue this trend going forward, which has been at the heart of our strategy for some time now. Let’s turn to Slide 4. At quarter end, consolidated net leverage stood at approximately 3 times, down from over 9 times at the beginning of last year. And net recourse leverage at the restricted group was approximately 2.3 times, after paying down nearly $550 million of recourse notes and revolver borrowings over the same time period. After our most recent debt call, we have $175 million of 2028 outstanding and also look ahead to the 2029s to become callable at par in January.

Every bond we retire converts high-cost interest into free cash flow. Net compounding is a value driver that transfers this growing cash flow stream from large debt payments to lasting shareholder value. Turning to Slide 5, we’ll talk about the specialties markets. You’ve heard others in industry citing U.S. refining utilization in the high 90s, the highest since 2019, and distillate cracks near record levels. Yields and specialties are different markets, but what’s common right now is they’re both in extremely short supply globally and it will take serious time to normalize. How long that is is a question we get a lot, and while it’s impossible to predict, the durability of the market is certainly something that’s been proven time and time again on the specialty side.

Currently, more than 10% of the world’s paraffinic base oil capacity is damaged or offline — a third of Middle Eastern capacity from the Iranian conflict and roughly a third of Europe’s Group I capacity through the Russia-Ukraine war. This is physical plant damage, not a short-term trading decision, as a hydroprocessing complex takes quarters to repair, recommission and requalify. And even once that capacity returns, the supply chain has to rebuild inventories that have been drawn down for most of a year.

Supply chains refill slowly and they refill at prices that incentivize it. As we’ve talked about previously, a lot of the globally impacted capacity is in the Group III market, which we don’t directly produce. But with our paraffinic lube selling at roughly $200 a barrel over WTI and our solvents selling at over $100 a barrel to WTI, we see that it’s an interconnected specialties market. And when you see global crudes trading at huge premium to domestic crudes and shipping costs sometimes adding another $20 a barrel, it’s clear that this is an infrastructure and supply chain story.

Meanwhile, demand hasn’t blinked. We posted our eighth consecutive quarter of specialty sales volumes above 20,000 barrels a day. Some may remember that this used to be a real accomplishment on the commercial side, and we now think of the 20,000 barrels a day of specialties as a floor. This is a combination of our commercial team’s continued success selling every barrel that can be produced, and also the result of the smaller reliability investments that have been made, which we are excited to continue, quite frankly.

During recent periods, our commercial team could have recognized higher margins in the spot markets, but we’re focused on the long term and will continue to support our loyal customers, many of whom have been with us for decades. Calumet remains on the right side of every one of these global dynamics. Our crude is domestic, nearby and readily available. And because we’re fully integrated from crude, we capture the full intermediate value uplift that non-integrated producers are paying up for in a scarce intermediate market.

So while we won’t point to this quarter as a new long-term norm, the underlying structure that produced this one doesn’t resolve quickly. It will take rebuilt plants and refilled inventories — and that’s a 2027 and beyond story. Looking at our own facilities, Calumet’s well positioned to meet the market needs. We just completed a major turnaround at Shreveport on time and on budget in early November. We limped into this turnaround as we tried to hold off as long as we could given the market, and we’re excited about our increased volume potential as we close out this year and step into 2027. During this turnaround, we took some steps to further harden reliability on a little less than half of our units, and late next year we’ll do the same on the rest.

Let’s turn to Slide 6 and talk Montana Renewables, which delivered a record $80.4 million of adjusted EBITDA with tax attributes at 80% in the quarter — that’s $1.86 a gallon. And quite frankly, we left a little on the table. Many will remember the significant power outage Great Falls had in April, and while we thought we had fully moved beyond that, we found some lasting catalyst damage during this quarter, and we dialed back rates and staff just a bit to ensure we hit the scheduled downtime we have in November to tie in our MAX SAF assets.

This tie-in has now begun and we’ve timed this to line up with the winding down of the retail asphalt season. The timing decision discussed last quarter worked out well as CMR captured $41 million of EBITDA during the third quarter. In the renewables market, we’re seeing the RVO continue to work exactly as designed. Biomass-based diesel production across the industry continues to remain strong and the agriculture complex is crushing more crop than ever. We laid out this policy thesis a year ago and it’s turned into the industry consensus. American capacity is back online, putting American feedstocks to work and producing more diesel in a time when the world needs it. Our view of the long-term balance hasn’t changed over time.

The market settles around what it takes to incentivize the marginal biodiesel producer, and Montana Renewables is advantaged across that entire range with its top-quartile cost position, feedstock and product flexibility, and a strong geographical footprint. We’re adding that advantage with our recently announced expansion. Let’s turn to Slide 7 and visit this project. In September we unveiled the improved MAX SAF expansion plan which included the amended DOE loan guarantee, the six small controllable steps and the economics which were roughly 70% of the originally expected benefit per $137 million, or less than 15% of the originally planned Phase 2 capital. Further, yesterday we announced the last element of this project which was the completion of the CMR lease for the related critical assets MRL will use and the accelerated expansion, and an associated amendment to our deal with our partner Warburg Pincus.

David will review that and I want to thank Warburg Pincus for their partnership. We’re four years into this investment, enabled, brought real industry perspective and expertise, and together with the DOE we’ve created a transaction that positions MRL significantly better than the originally contemplated MAX SAF project did. The next step of this expansion is tying in the leased CMR equipment, including our hydrotreater. This began this week as planned and we’re expecting to be back online this month to increase rate, improve our naphtha yields and ramp up SAF production with our new SAF polishing process. As discussed last quarter, this dual-stage SAF polishing service will allow Montana Renewables to process SAF at lower severity than the industry-standard cracking service, allowing us to generate SAF while minimizing volume loss and naphtha production.

This underpins our path to reach an 80 million annual gallon SAF run rate by year end, 120 million plus by spring, 120 to 150 million by the end of ’27 and ultimately to 200 million gallons in 2028. In addition, we’ll capture and sell RINs, generating renewable NGLs, significantly reduce our water usage and creep up throughput to 17,000 barrels a day throughout the project. SAF receives a lot of limelight and we’re excited about the level to which these other steps widen our competitive advantage as well. Higher volumes bring more margin and economies of scale, capturing propane and butane and selling them into renewable markets, generating RINs is a tremendous upgrade, and making all of our products with an enhanced pretreatment unit that provides even more feedstock flexibility than we currently enjoy are long-term differentiating advantages.

Before I hand it to David, one more thank you. This quarter asked a lot of our people. The Calumet team carried a record pace at nearly every site. Our two largest sites did so while planning a major turnaround and projects, and our commercial team continues to demonstrate what makes them so special. We’re grateful for the 1,600 employees that are executing every day and driving these results. With that, I’ll turn the call over to David.

David Lunan (EVP and Chief Financial Officer)

Thanks, Todd, and good morning, everyone. Let’s turn to slide 8 and talk about our Montana Renewables segment. Before I get into the financial details, I wanted to walk through our announcement from yesterday. We announced that, in a connected deal with the Department of Energy, Warburg Pincus and Calumet have agreed on a lease structure between CMR and MRL for the equipment and a revision to the MRL–Warburg agreement. This deal will provide an expected $30 million annual lease payment to CMR from MRL for the use of the equipment necessary for the SAF expansion.

Accordingly, Warburg’s preferred rate of return on their investment will increase to 11% and their equity position will decrease from its current 13.2% of common equity in MRL to a warrant to purchase 8% of MRL’s common equity at a $750 million equity value strike price. All in, this structure provides MRL the assets it needs to expedite the expansion and save roughly $1 billion of capital compared to the original plan, while also providing CMR a fixed cash flow stream for these key assets and simplifying the capital structure to provide maximum strategic flexibility for Montana Renewables going forward.

Moving on to the financials, Montana Renewables segment reported adjusted EBITDA with tax attributes of $110.6 million. Todd covered MRL’s $80.4 million at 100% in its first full quarter following the initial phase of the MaxSAF expansion and a strong index margin environment. We’re proud of that performance and our first full quarter of showing the financial capability of the business. On the refining side, CMR delivered the outsized seasonal quarter we foreshadowed with $40.8 million of adjusted EBITDA as it captured peak asphalt season and the elevated fuels margins ahead of the reconfiguration.

As part of that reconfiguration, the hydrotreater, hydrogen plant, and naphtha splitter moved to MRL under the $30 million lease, and CMR will continue to operate, produce high-quality retail asphalt, and retain all of its employees. Moving to slide 9, we see the Specialty Products and Solutions segment. Adjusted EBITDA was $248.1 million, more than triple the prior year’s $80.2 million. Specialty materials margin reached over $108 per barrel versus $62 a barrel a year ago, and fuels and asphalt margin were almost $38 a barrel. Execution matched the market. This was our eighth consecutive quarter of specialty sales above 20,000 barrels per day, and we achieved it while deliberately extending Shreveport’s production runway ahead of the turnaround that began in October.

The turnaround has been completed and positions Shreveport to run safely, reliably, and full into 2027. Turning to Performance Brands, adjusted EBITDA was $9.1 million, down from $13.2 million in the prior year period. The team continued to deliver on volume growth with a healthy 6.8 million gallons versus 6.3 million gallons sold a year ago. The story is unchanged from last quarter. Input costs rose faster than our retail channel pricing could follow, as that channel carries a typical 60 to 90 day price lag. Pricing actions are flowing through now once again, which have been a recurring theme this year.

As soon as input costs stabilize, we’d expect margins to normalize as the increases have been implemented. Of course, the same input cost move squeezing Performance Brands is a major contributor to our SPS segment, and with SPS production roughly 35 times the size of Performance Brands, that’s a trade we’ll take every quarter. Additionally, offsetting some of those cost headwinds was a $7 million insurance claim related to Winter Storm Uri that was realized during the period.

In closing, we enter the fourth quarter with real momentum. Specialties pricing remains strong. The Shreveport turnaround is now complete. Montana Renewables enters the quarter fully operational and will complete its tie-in in November, and the balance sheet is stronger than it has been in this company’s modern history. Our job from here is to run safely, reliably, and in full, complete the reconfiguration at Great Falls, and keep converting earnings and cash flow into reducing debt and interest expense, and thereby continuing to build permanent shareholder value.

With that, I’ll turn the call back to the operator for questions.

OPERATOR

Yes, thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star then two. At this time, we will pause momentarily to assemble the roster. And today’s first question comes from Connor Fitzpatrick from Bank of America.

Connor Fitzpatrick (Analyst)

Good morning, everybody. Thanks for taking my question. The midterm elections have come and gone and it looks like control of federal and state arms of the government have changed in a few places. I was wondering maybe if you could give an update or possible outlook on how SAF voluntary demand in the United States might be affected. You know, there was kind of a wave of voluntary airline company-level mandates that had happened, you know, in the last kind of political upcycle for the fuel.

I was wondering how that unfolded last time and maybe it could unfold possibly going forward, and then does it change the policy environment for LCFS expansions in new states as well? Thanks.

Bruce Fleming (EVP, MT Renewables and Corporate Development)

Hey, Connor, it’s Bruce. I’ll take a shot at that. So the view from here is that these are bipartisan initiatives. You know, both administrations, both sides of the aisle have been supportive of RVO directions. They know that that ties back to ag policy. In terms of the voluntary SAF, I think that’s probably also a bit independent of which party is in the driver’s seat. You know, they’ve both been supportive through, for example, the PTC. You know, we expect that to continue.

Connor Fitzpatrick (Analyst)

Okay, thanks. And then I see in the slides you still have an estimated 10% or so of specialty products capacity offline globally. It looks like a lot of it in the Middle East if you look at different consultants’ estimates. Some of the specialty products refinery damage is six-plus months to repair. I was wondering, even if we see a ceasefire or peace in the near term, how long a market short could last—could outlast that—just because of the damage across the world?

Scott Obermeier (President)

Hey, Conor, this is Scott. You know, I think we agree with what you mentioned and what’s been published out there. We view the impact globally as not a quick fix. Right. And so a lot of the damage—as we’re talking base oils in particular—plus other refining, Middle East as you mentioned, but also Russia, a lot of refinery impact in Russia and base oil impact there as well. So, you know, our outlook is certainly this is going to be a tighter market for longer because it’s going to take time to get rebuilt and then replenish global supply chains.

Connor Fitzpatrick (Analyst)

Great. Thanks for taking my questions.

OPERATOR

Thank you. And the next question comes from Meet Daya with HCU Enright.

Meet Daya (Analyst)

Hey, good morning, guys. Thanks for taking my questions. Congrats on the solid quarter. Just to follow up on the prior question, so are you seeing similar strength in margins and volumes from specialty for 4Q so far as you did in 3Q?

Scott Obermeier (President)

Yeah. This is Scott. I would say yes, that our outlook here for the fourth quarter, which normally has seasonality to it—so it’s normally a little bit slower quarter for specialties—we’ve seen demand, customer demand, remain durable. I think there’s a lot of attention, a lot of focus, a lot of prioritization around business continuity, security, and supply of raw materials. And so, you know, certainly at this time in the quarter, we still see demand solid, strong.

And let me follow on a little bit here with just our ability to produce ramping up in the fourth quarter. So we obviously had the Shreveport turnaround, and that one’s behind us, and we’re pretty excited about our ability going forward. When you think about kind of third-quarter volumes, you know, we were quite literally limping into that turnaround. We were running in kind of the mid-40s as far as thousand barrels a day, buying a little bit of base oil on the market to supplement what we were making.

And I think, coming out of that turnaround now, there was a lot of really good work done, and we’re expecting to be running in the 50s of thousand barrels a day, making our own feedstock. So not only do we expect the market to be strong, like Scott said, we’re excited to see our ability to just meet it continue to increase.

Meet Daya (Analyst)

Thank you, guys. And then on that Warburg transaction, did you say $750 million at 8% equity? And is that for the MRL asset or is that for Calumet Inc?

Todd Borgman (Chief Executive Officer)

No, that was at the MRL asset. So the way it worked was, you know, prior, Warburg had 13.2% of common equity in Montana Renewables. In the future, they’ll have an option to purchase 8% of Montana Renewables at a $750 million equity strike price. So hopefully that clears that up.

Meet Daya (Analyst)

Yes. Thank you, Todd, that’s helpful. And then just the Performance Brands seems to be lagging a little bit relative to the other segments. Last quarter you said there will be some catch up. Is that still on the table, or is there some other sort of overhang for that segment?

Scott Obermeier (President)

Yep. This is Scott. You know, so when we think about the Performance Brands segment, a couple things. One, overall we’ve been really pleased. I mean, our volumes are up again this year. We’ve been on a really good growth trajectory. You know, I think that the challenge is, as we’ve mentioned before, there is generally a 90-day price lag out there. And so what’s gone on over the last four to five months is just the business continuing to chase pricing up—our costs up, I should say.

But we’ve been successful in pushing through increases. But there’s just this lag, and until input raw material costs stabilize, it’s a little bit of just chasing after our cost increases. One other quick comment that David alluded to in his prepared remarks: obviously it’s a big headwind for Performance Brands in chasing the cost increases up, but on the SPS side, obviously it’s super beneficial.

Meet Daya (Analyst)

Yeah, understood. Thank you, guys. That’s all I have.

OPERATOR

Thank you. And the next question comes from Josiah Knight with Goldman Sachs.

Josiah Knight (Analyst)

Yeah, good morning, team. Thanks for taking our question. Maybe just on the CMR asset tie-in announced yesterday, can you just walk us through the moving pieces and how this agreement will enable MRL to kind of, you know, increase SAF volumes and total throughput?

Scott Obermeier (President)

Yeah, sure, I’ll start and let’s see if Bruce jumps in. You know, we’ve laid out the multiple steps of the MAX SAF expansion and the first one’s the first steps underway right now. So immediately what’s happening is the hydrotreater, the naphtha splitter from CMR, and a hydrogen plant — 5 mm hydrogen plant — are being tied into MRL. So right off the bat that’s going to allow a couple different things, right? It’s going to allow us to reduce naphtha yield with the naphtha splitter, improve the price on the remaining naphtha that we do have. The rest will be blended into renewable diesel, and it’ll allow us to activate or enter into this new SAF polishing service that we’ve talked about the last couple of quarters that we think, you know, really is a lasting advantage on production costs around SAF.

And then of course hydrogen is kind of the rate limiter of throughput. So we’re going to put that extra 5 to work at MRL and increase throughput 1,000 barrels a day as well. So that’s the first step. And then there’s a handful of other steps that will occur over the next couple of years. One of the other assets that’s being leased or will be available next year is the asset that will help us capture the renewable propane and renewable butane out of the stream at Montana Renewables and sell that. So it’s a multi-part lease. Basically, MRL has the ability to use everything they need that’s been identified in a MAX SAF expansion so far. So hopefully that helps understand the first step.

David Lunan (EVP and Chief Financial Officer)

Yeah, so it’s David. Yeah, I think our plan continues to be the same: use cash generated across all our businesses to reduce high-cost capital. So right in front of us is the 2028s — there’s $175 million outstanding. We’ll use cash generated from operations and continue to chip away at that. Right behind those notes are the 2029s, which become callable at par in January of ’27. And so we continue to have a ramp. We’re excited about the $260 million we’ve already paid down and the additional $26 million or so of interest that that’ll save us on an annual basis.

So strategy will remain the same.

OPERATOR

Thank you. The next question comes from Jason Gabel with TD Cowen.

Jason Gabel (Analyst)

Yeah, hey, morning. Thanks for taking my questions. I wanted to go back to the updated agreement and just trying to understand what the cash outflows are now from MRL to both the parent and then to Warburg as well. Is it simply just, as I look at slide 8, adding up the intercompany instruments — that’s like $40 million, the $30 million lease payment, and then the 11.5% on the pref units to Warburg? Is that what’s flowing out on an annual basis from MRL, or is it a bit more nuanced than that?

David Lunan (EVP and Chief Financial Officer)

Yeah, Jason, I think you’re close, so let me just clarify a bit. So there’s both services — ongoing service provided under the MSA — and so MRL will continue to pay Calumet for those. You can think about that as shared services, employees, utilities — essentially op costs — and those will continue in normal course. And nothing’s changed there. Related to the lease, that’s a $30 million annual payment. The op costs related to those assets will be handled by MRL.

And so that’s what I think about as the kind of immediate cash flow that’s going to come out in normal course. The interest rates that are described on the intercompany financing arrangements, as well as the Warburg arrangement, those are PIKing and those will continue to PIK until project completion, just under the loan guarantee agreement.

Jason Gabel (Analyst)

Got it. Okay, that’s helpful color. And then the other part of this, which is the exercise of the 8% warrants at a $750 million equity strike — is that kind of at Warburg’s discretion? Do you need to have mutual agreement to do that?

David Lunan (EVP and Chief Financial Officer)

You know, it’s their warrants. They’ll have the right to exercise them like any other warrant.

Jason Gabel (Analyst)

Okay, got it. And then just on the near term, on 4Q — given it sounds like there was a bit more maintenance activity both at Shreveport and then with the MRL tie-in — are you able to provide guidance on throughput expectations for the quarter?

Scott Obermeier (President)

Hey, Jason, I think you could think about both of those as a little bit less than a month. So the Shreveport turnaround was a big one. It’s behind us. You know, it was a good chunk of October. And like we were saying earlier, back on now, Montana Renewables and CMR — that tie-in just began and that’ll be back on. It won’t be all of November, but, you know, last week or so of November. So yeah, I think conservatively if you set a month for each of those, that would be a bit overshooting, but it’s a good chunk of the month.

Jason Gabel (Analyst)

All right, great. I will leave it there. Thanks for the answers.

OPERATOR

Thank you. The next question is from Greg Brody with Bank of America.

Greg Brody (Analyst)

Morning, guys. Just to turn back to the specialty materials business, how should we think about — I think some folks have asked this — so just curious if you can guide to where you think the proper margin is during this period of supply constraints and then ultimately, do you think this changes your long-term view on where mid-cycle should be for this business?

David Lunan (EVP and Chief Financial Officer)

Hey Drake, thanks for the question. I think as Scott said, we’re expecting margins to remain pretty similar here for the foreseeable future. We’re certainly not calling for $250 million of SPS to be like the new norm forever type of thing. It’s certainly a little bit of an elevated market, no doubt, but we’re also not seeing that come down in the near term. So there’ll be a slow creep over time — hard to predict exactly when that creep would occur — but kind of like we talked about earlier in the Q&A and in the scripted remarks, we don’t see that happening in the near future, just given how much infrastructure is offline and how long it’s going to take to respond to that.

So I think going forward, other than the turnaround that we just talked about in Shreveport for a month, you should be in the seasonality that Scott mentioned earlier — although we haven’t really seen any yet — you should be thinking that what we did here is pretty reasonable to look at going forward. As far as the mid-cycle, I do think that our mid-cycle has increased. Hard to put a specific dollar amount on that, but it’s increased in two ways. One, in a huge way on cash generation. When you think about just the amount of additional cash that we’re unlocking through the accelerated deleveraging, I think our ability to generate cash flow in this business is substantially higher in the mid-cycle than it was when we had all of the debt on the balance sheet, going forward or looking backwards.

And twofold, I’d say just our reliability and some of the small reliability investments that we’ve made — we expect those to continue to pay and, quite frankly, continue to get better. So if we thought about before our mid-cycle levels, we would certainly look at going forward, even outside of the current margin environment, to be building on that with some of the improvements that we’ve made just in the base reliability. And then obviously we’ve talked about before, we’ve also got some pretty interesting and exciting growth capital in the specialty business, which we haven’t spent any on in many years.

So that’ll be adding to the mid-cycle as well. And we’ll put some of this excess cash flow to good use there.

Greg Brody (Analyst)

Thank you. And with the remaining legacy Montana facility, how should we think about the piece that’s left that’s not part of this lease in terms of EBITDA generation and the seasonality throughout the year?

David Lunan (EVP and Chief Financial Officer)

Yeah, I think it’s a good question. We haven’t gone too far in the guidance of what that asset can do. What I can tell you is the asphalt business has been a really nice one. So we think the lease — the $30 million value for the lease — is basically kind of a reasonable range to compensate long term for what CMR has generated. Obviously the current margin environment is better than that. So we do expect CMR to generate positive EBITDA going forward.

It certainly won’t be as much as it was operating at a full refinery. So I don’t want to put a specific number on it, but it’s not as high as the historic range, but it’s also certainly positive. And there’ll be a little bit of seasonality just given it’s going to be more heavily weighted towards asphalt, but it’ll still be a positive contributor to the business.

Greg Brody (Analyst)

Thank you. And then maybe just turning to Joe Amarl and the transaction you announced yesterday, just can you clarify: is the Warburg instrument still a PIK security, and do you expect that to PIK, or when do you think you’d start paying?

David Lunan (EVP and Chief Financial Officer)

Yeah, that’s a good question. It is a PIK facility. Like we talked about last quarter, the cash in Montana Renewables will stay in Montana Renewables. Although it’s building pretty rapidly — we’ve got a few hundred million dollars built up on the balance sheet there — but that’s going to stay there until project’s complete at Montana Renewables. We certainly have the ability to pay down that instrument sooner. And, you know, at that rate, I’d be shocked to see that instrument around that termination or expiration long term.

So we’ll see where that goes. But with the cash flow generation that we have throughout the company, it’s certainly a potential use of cash to expedite the payment of that instrument.

Greg Brody (Analyst)

Are you — just to be clear — saying cash from the restricted group could be used to pay that down or, at some point, assuming you can amend the DOE agreement, you could use cash from MRL?

David Lunan (EVP and Chief Financial Officer)

Either. Either. Right. As we look forward and just try to reduce interest cost and look at consolidated debt across the board, I think either is an opportunity. We’re not fixated on one path or the other right now. We’ll just kind of stay focused on the market and see how things are progressing.

Greg Brody (Analyst)

Got it. But that presumably would not interfere with paying down the debt at the holding company — the remaining ’28s and the ’29s. And just as you think about that debt target at the parent, how has this agreement changed your thoughts about monetizing the asset? Any sort of updates there in terms of updating MRL?

Todd Borgman (Chief Executive Officer)

Yeah, I don’t think our long-term view has changed at all around MRL. I think maybe necessity has changed, certainly in the current margin environment. We’ve announced kind of the next phase of what we’re doing at Max SAF. We continue to build value there. Certainly I’d say in prior conversations the key driver to accelerating a sale was accelerating the debt paydown at the Restricted Group. Obviously that’s not the only requirement right now. Right now the requirement is what can we do to accelerate or to optimize overall shareholder value.

And look, we’ve created a really strong currency here at MRL and we’re going to use that to create enterprise value in whichever form it takes. So certainly monetization remains an option long term. We think of that as the most likely scenario. But I’d say the idea of pushing that solely to drive accelerated deleveraging of the Restricted Group isn’t the requirement. Our eyes are on maximizing shareholder value. I don’t know that I’d say that it’s not something we’re contemplating. I’d say there’s a lot of options there. You know, it’s certainly not something I’d expect in, you know, the imminent few months, but it very much remains an option and as do other strategic options.

Yeah, look, I can tell you we look at all of it through the same lens that we just talked about and that’s max shareholder value creation. We’re not going to take our eye off the ball on finishing the deleveraging. So I think that’s the first message is just because we’ve had a couple great quarters here, we still want to continue to pay down debt and that’s our number one priority and carries a huge rate of return. But at the same time we’re generating a heck of a lot of cash and we’re going to value. We’re going to compare all of our growth opportunities against one another, whether that’s MRL growth, organic growth, Capex, inorganic M&A. We’ll evaluate everything to, you know, to drive shareholder value. I just say we don’t want to get ahead of ourselves and, and first and foremost is completing that deleveraging. And at the same time, we’re looking forward and, you know, we’ll keep building that war chest and when the time is right to strike on something that’s usually synergistic, we’ll take advantage of that.

Thank you.

OPERATOR

Thank you. And this concludes our question and answer session. I would like to turn the conference back over to John Kampa and Investor Relations for Calumet for any closing comments.

John Kampa (Investor Relations)

Thank you, Keith. On behalf of Todd and the entire management team, I’d like to thank everyone again for their interest in Calumet. Have a great rest of the day.

OPERATOR

Thank you. The conference has concluded. Thank you for attending today’s presentation. You may now disconnect your lines.

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