(Idea) Calumet: De-Risking Sets Up The Stock For Gains
Previous write-ups on CLMT 4.64%↑:
(Idea) Calumet - The Next Special Situation Idea
(Idea) An Important Update On Calumet
(Idea) Calumet Shares Sell Off Despite A Brightening Outlook
By: Jon Costello
Calumet (CLMT) reported first-quarter 2026 results on May 8, 2026. The results validated my investment thesis. However, they don’t provide the entire story of how the company’s prospects are set to improve, so I want to provide a more comprehensive update.
Since June 2022, my CLMT investment thesis rested on four main assumptions. First, that management would successfully address the company’s debt maturities. Second, that the legacy business would continue to perform as it had in recent years. Third, that management would execute on its operational plan for Montana Renewables (MRL) and the broader business. And fourth, that the policy environment for biofuels would not turn against the company.
All four have now resolved more favorably than I had expected. As a result, the bull scenarios assigned lower probabilities to a year ago are closer to my current valuation, which I discuss below.
In short, recent events have effectively de-risked my CLMT investment thesis, with my new base scenario considerably higher and a bull scenario that is multiples above my old valuation.
Superb Financial Execution
Back in 2022, my articles postulated a bull scenario that required three developments that had not yet happened. As such, they represented a risk for shareholders.
The Montana Renewables project was in its early stages and needed to refinance its expensive legacy debt. MaxSAF 150, the expansion designed to multiply MRL’s sustainable aviation fuel (SAF) output four-to-fivefold, needed to start up on schedule, and CLMT needed to resolve the issue of its high-coupon debt wall, with maturities at the parent level in 2026 and 2027. All three are now done.
The financing piece has been the most significant. On February 18, 2025, the thesis ceased to be conditional. That morning, the first $782 million tranche of CLMT’s $1.44 billion Department of Energy loan guarantee was funded, replacing debt that had cost MRL 9% to 12% in coupon with new debt at roughly 4.9%. Until then, I had held CLMT in the HFIR Energy Income Portfolio for nearly three years. During that time, the refinancing wall the market kept pricing as a real probability of distress. After it was funded, the refinancing wall at MRL was gone.
Equally important, the DOE loan is structured so that if MRL defaults, the lender cannot pursue CLMT. From the parent’s perspective, this is the cleanest piece of leverage MRL has ever carried.
A separate deal at the parent level further eliminated the near-term debt maturity wall. In January and March 2026, CLMT issued $555 million of new 2031 Senior Notes, with the second tranche at 105% of par, a sign that the credit had strengthened between the two issues. It used the proceeds to redeem its remaining 11.00% Notes due 2026 and the 8.125% Notes due 2027. The new coupon is modestly higher than the cost of the retired 2026 and 2027 notes, but the main intention was to extend maturity to ensure catalysts unlock additional value.
The combined effect on recourse leverage, which represents the debt that is an obligation to CLMT itself, not just MRL, was a move from roughly 8x EBITDA to 5x on a forward normalized basis over 2025. Consolidated debt has actually risen because the DOE drawings are layered on top, but the DOE balance does not threaten the parent. The maturity wall was gone.
Stable Legacy Business Performance
Operational improvement at the legacy refining business kept the company’s financial results on an upward trend.
Since 2022, the legacy business has averaged $271 million of Adjusted EBITDA net of Corporate overhead, with a peak of $314 million in 2022 and a trough of $207 million in 2024, when legacy business margins deteriorated due to Shreveport operational issues. EBITDA recovered to $262 million in 2025, and it enters 2026 with the 2:1:1 forward refining margin running at over $42 per barrel against a 2025 average closer to $24. I expect the legacy business to generate relatively healthy EBITDA over the remainder of the year.