As filed with the Securities and Exchange Commission on February 27, 2008

Registration No. 333-      

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

CVR PARTNERS, LP

(Exact Name of Registrant as Specified in Its Charter)

 

 

2277 Plaza Drive, Suite 500

Sugar Land, Texas 77479

(281) 207-3200

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

John J. Lipinski

2277 Plaza Drive, Suite 500

Sugar Land, Texas 77479

(281) 207-3200

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

With a copy to:

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after the effective date of this Registration Statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 (the “Securities Act”), check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

 

 

CALCULATION OF REGISTRATION FEE

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

Subject to Completion. Dated February 27, 2008.

 

 

5,250,000 Common Units

Representing Limited Partner Interests

 

 

CVR Partners, LP

 

 

 

 

This is the initial public offering of our common units representing limited partner interests. We are offering all of the common units to be sold in this offering.

 

Prior to this offering, there has been no public market for our common units. It is currently estimated that the initial public offering price per common unit will be between $      and $     . We intend to apply to list our common units on the New York Stock Exchange under the symbol “CVE”.

 

See “Risk Factors” beginning on page 21 to read about factors, including the following, you should consider before buying our common units:

 

 

 

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

 

 

To the extent that the underwriters sell more than 5,250,000 common units, the underwriters have the option to purchase up to an additional 787,500 common units from us at the initial public offering price less the underwriting discount.

 

 

 

 

The underwriters expect to deliver the common units against payment in New York, New York on          , 2008.

 

 

 

 

Prospectus dated          , 2008.

[pictures of nitrogen
fertilizer plant]

 

 

TABLE OF CONTENTS

 

 

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with additional or different information. If anyone provides you with additional, different or inconsistent information you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should assume the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.

 

PROSPECTUS SUMMARY

 

CVR Partners, LP

 

Our Competitive Strengths

	•	Regional Advantage and Strategic Asset Location.  We are geographically advantaged to supply nitrogen fertilizer products to markets in Kansas, Missouri, Nebraska, Iowa, Illinois, Colorado and Texas without incurring intermediate storage, barge or pipeline freight charges. Because we do not incur these costs, we have a distribution cost advantage over U.S. Gulf Coast ammonia and UAN producers and importers, based on recent freight rates and pipeline tariffs for U.S. Gulf Coast importers.

	•	High Quality Pet Coke Gasification Fertilizer Plant with Solid Track Record.  Our nitrogen fertilizer plant, completed in 2000, is the newest nitrogen fertilizer facility in North America and the only one of its kind in North America utilizing a pet coke gasification process to produce ammonia. While our facility is unique to North America, gasification technology has been in use for over 50 years and has demonstrated economic reliability. Because we use significantly less natural gas in the manufacture of ammonia than other domestic nitrogen fertilizer plants, with the currently high price of natural gas our feedstock cost per ton for ammonia is considerably lower than that of our natural gas-based fertilizer plant competitors. We estimate that our facility’s production cost advantage over U.S. Gulf Coast ammonia producers is sustainable at natural gas prices as low as $2.50 per MMBtu. We have a secure raw material supply, with an average of more than 75% of the pet coke required by our nitrogen fertilizer plant during the last four years supplied by CVR Energy’s refinery. We obtain pet coke pursuant to a 20-year agreement with CVR Energy.

 

Key Market Trends

	•	The Energy Independence and Security Act of 2007 requires fuel producers to use at least 36 billion gallons of biofuel (such as ethanol) by 2022, a nearly five-fold increase over current levels. The increase in grain production necessary to meet this requirement is expected to result in rising demand for nitrogen-based fertilizers.

	•	World population and economic growth, combined with changing dietary trends in many nations, has significantly increased demand for U.S. agricultural production and exports. Increasing U.S. crop production requires higher application rates of fertilizers, primarily nitrogen-based fertilizers.
	•	Natural gas prices are currently higher in the United States and Canada compared to prevailing prices in the years prior to 2004. High North American natural gas prices contribute to the currently high prices for nitrogen-based fertilizers. Natural gas prices have often correlated positively with fertilizer price trends, although in 2007 fertilizer prices increased substantially more than natural gas prices increased (based on data provided by Blue Johnson).

 

Our Business Strategy

	•	Expanding UAN Production.  We are moving forward with an approximately $85 million nitrogen fertilizer plant expansion, of which approximately $8 million was incurred as of December 31, 2007. This expansion is expected to permit us to increase our UAN production and to result in our UAN manufacturing facility consuming substantially all of our net ammonia production. We expect that this will help to increase our margins because UAN has historically been a higher margin product than ammonia. The UAN expansion is expected to be completed in late 2009 or early 2010. We estimate it will result in an approximately 400,000 ton, or 50%, increase in our annual UAN production.
	•	Executing Several Efficiency-Based and Other Projects.  We are currently engaged in several efficiency-based and other projects in order to reduce overall operating costs, incrementally increase our ammonia production and utilize byproducts to generate revenue. For example, by redesigning the system that segregates carbon dioxide, or CO2, during the gasification process, we estimate that we will be able to produce approximately 25 tons per day of incremental ammonia, worth approximately $4 million per year at current market prices. We estimate that this project will cost approximately $7 million (of which none has yet been incurred) and will be completed in late 2009. We are also working with a company with expertise in CO2 capture and storage systems to develop plans whereby we may, in the future, either sell approximately 850,000 tons per year of high purity CO2 produced by our nitrogen fertilizer plant to oil and gas exploration and production companies to enhance oil recovery or pursue an economic means of geologically sequestering such CO2.
	•	Evaluating Construction of a Third Gasifier Unit and a New Ammonia Unit and UAN Unit at Our Nitrogen Fertilizer Plant.   We have engaged a major engineering firm to evaluate the construction and operation of an additional gasifier unit to produce a synthesis gas from pet coke. We expect that the addition of a third gasifier unit, together with additional ammonia and UAN units, to our operations could result, on a long-term basis, in an increase in UAN production of approximately 75,000 tons per month. This project is in its earliest stages of review and is still subject to numerous levels of internal analysis.

	•	Acquiring Assets from CVR Energy’s Petroleum Business.   We may seek to purchase specific assets from CVR Energy and enter into agreements with CVR Energy for crude oil transportation, crude oil storage and asphalt and refined fuels terminaling services. Examples of assets that we may seek to acquire from CVR Energy include (1) a 25,000 bpd crude oil gathering pipeline operation serving central Kansas, northern Oklahoma, and southwestern

	•	Providing Infrastructure Services to CVR Energy.  We expect that over time, as CVR Energy grows, it will need incremental pipeline transportation and storage infrastructure services. We believe we will be well situated to meet these needs due to our relationship with CVR Energy and proximity to CVR Energy’s petroleum facilities, combined with management’s knowledge and expertise in hydrocarbon storage and related disciplines. We may seek to acquire new assets (including pipeline assets and storage facilities) in order to service this potential new source of revenue from CVR Energy.

 

Risk Factors

 

Our History

 

Types of Partnership Interests

	•	common units representing limited partner interests, all of which we will sell in this offering (approximately 13% of all of our outstanding units);
	•	GP units representing special general partner interests, all of which will be held by our special general partner (approximately 47% of all of our outstanding units);
	•	subordinated GP units representing special general partner interests, all of which will be held by our special general partner (40% of all of our outstanding units);
	•	incentive distribution rights representing limited partner interests, all of which will be held by our managing general partner; and
	•	a managing general partner interest, which is not entitled to any distributions, which is held by our managing general partner.

 

The Transactions

	•	Our general partners and Coffeyville Resources will enter into a second amended and restated agreement of limited partnership, the form of which is attached hereto as Appendix A;
	•	We will distribute all of our cash on hand immediately prior to the completion of this offering, estimated to be $40.0 million, including the settlement of net intercompany balances at the time of such distribution, to our special general partner;
	•	We expect to enter into a new      -year, $      million revolving secured credit facility, with no principal amount expected to be drawn upon the closing of this offering, and expect to be released from our obligations under CVR Energy’s credit facility and swap agreements with J. Aron & Co., or J. Aron, which is an affiliate of Goldman, Sachs & Co.;
	•	Coffeyville Resources will contribute its 30,333 special LP units to our special general partner, and the 30,303,000 special GP units and 30,333 special LP units will convert into 18,750,000 GP units and 16,000,000 subordinated GP units; and

	•	We will offer and sell 5,250,000 common units in this offering, pay related commissions and expenses and apply the net proceeds of this offering as described under “Use of Proceeds”.

 

CVR Energy

 

Organizational Structure

*		CVR GP, LLC is our managing general partner. Our managing general partner holds incentive distribution rights, or IDRs, which entitle it to receive increasing percentages of our quarterly distributions if we increase our distributions above an amount specified in our limited partnership agreement. The IDRs will only be payable after we have distributed all adjusted operating surplus (as that term is defined in our partnership agreement and in the glossary of selected terms included as Appendix B in this prospectus) we generate during the period from the closing of this offering through December 31, 2009.

 

Management

 

Conflicts of Interest and Fiduciary Duties

 

Date of Formation; Principal Executive Offices and Internet Address; SEC Filing Requirements

 

This Offering

Issuer		CVR Partners, LP
Common units offered		5,250,000 common units.
Option to purchase additional common units from us		787,500 common units.
Units outstanding immediately after this offering		5,250,000 common units representing approximately 13% of our outstanding units, 18,750,000 GP units representing approximately 47% of our outstanding units and 16,000,000 subordinated GP units representing 40% of our outstanding units (in each case excluding 2,000,000 common units which are subject to issuance under our long-term incentive plan).
		6,037,500 common units representing approximately 15% of our outstanding units, 18,750,000 GP units representing approximately 46% of our outstanding units and 16,000,000 subordinated GP units representing approximately 39% of our outstanding units, if the underwriters exercise their option to purchase additional common units in full (in each case excluding 2,000,000 common units which are subject to issuance under our long-term incentive plan).
		Our outstanding units are comprised of three different types of units: common units, GP units and subordinated units. Our common units represent limited partner interests issued in this offering. Our GP units represent special general partner interests owned by our special general partner. Our subordinated units represent special general partner interests owned by our special general partner.
Use of Proceeds		We estimate that the net proceeds to us in this offering, after deducting underwriting discounts and commissions and the estimated expenses of this offering, will be approximately $93.4 million (based on an assumed initial public offering price of $20.00 per common unit). We intend to use the net proceeds of this offering as follows:
		• approximately $18.4 million will be used to reimburse Coffeyville Resources for certain capital expenditures made on our behalf prior to October 24, 2007;
		• approximately $2.5 million will be used by us to pay financing fees in connection with entering into our new revolving secured credit facility; and
		• approximately $72.5 million will be retained by us to fund working capital and future capital expenditures of our business, including the ongoing expansion of our nitrogen fertilizer plant.
		If the underwriters exercise their option to purchase 787,500 additional common units in full, the additional net proceeds to us would be approximately $14.6 million. We intend to retain such additional net proceeds from any exercise of the

		underwriters’ option to fund working capital and future capital expenditures of our business. See “Use of Proceeds”.
Cash Distributions		We will make minimum quarterly distributions of $0.375 per common unit ($1.50 per common unit on an annualized basis) to the extent we have sufficient available cash (as defined below). Our ability to pay cash distributions at this minimum quarterly distribution rate is subject to various restrictions and other factors described in more detail under “Our Cash Distribution Policy and Restrictions on Distributions”.
		Within 45 days after the end of each quarter, beginning with the quarter ending          , 2008, we will make cash distributions to unitholders of record on the applicable record date. We will pay investors in this offering a prorated quarterly distribution for the period from the closing of this offering through the end of the quarter in which this offering occurs based on the actual length of the period.
		In general, we will pay any cash distributions we make each quarter in the following manner:
		• First, to the holders of common units and GP units until each common unit and GP unit has received a minimum quarterly distribution of $0.375 plus any arrearages from prior quarters;
		• Second, to the holders of subordinated units, until each subordinated unit has received a minimum quarterly distribution of $0.375; and
		• Third, to all unitholders, pro rata, until each unit has received a quarterly distribution of $0.4313.
		If cash distributions exceed $0.4313 per unit in a quarter, our managing general partner, as holder of the IDRs, will, after the distribution of the amount described under “ — Non-IDR Surplus Amount” below, receive increasing percentages, up to 48%, of the cash we distribute in excess of $0.4313 per unit. We refer to these distributions as “incentive distributions”. Our managing general partner holds all of the IDRs. See “How We Make Cash Distributions — Incentive Distribution Rights”.
		Our partnership agreement requires us to distribute all of our cash on hand at the end of each quarter, less reserves established by our managing general partner, subject to the sustainability requirement in the event we elect to increase the quarterly distribution amount. We refer to this cash as “available cash”, and we define its meaning in our partnership agreement, under “How We Make Cash Distributions — Distributions of Available Cash — Definition of Available Cash” and in the Glossary of Selected Terms included as Appendix B in this prospectus. The amount of available cash may be greater or less than the aggregate amount necessary to make the minimum quarterly distribution on all common units, GP units and subordinated units.

		We believe that, based on the estimates and assumptions described under “Our Cash Distribution Policy and Restrictions on Distributions — Assumptions and Considerations”, we should have sufficient available cash to make the full minimum quarterly distributions for the twelve months ending March 31, 2009 on all common units, GP units and subordinated units. However, unanticipated events may occur which could materially adversely affect the actual results we achieve during the forecast period. Consequently, our actual results of operations, cash flows and financial condition during the forecast period may vary from the forecast, and such variations may be material. Prospective investors are cautioned not to place undue reliance on the forecast and should make their own independent assessment of our future results of operations, cash flows and financial condition. Our pro forma cash available for distribution generated during the year ended December 31, 2007 would have been sufficient to allow us to make the full minimum quarterly distribution on the common units, GP units and subordinated units during this period. See “Our Cash Distribution Policy and Restrictions on Distributions — Pro Forma Cash Available for Distribution”.
Non-IDR Surplus Amount		Our managing general partner will not be entitled to receive any distributions in respect of the IDRs until we have made cash distributions in an aggregate amount equal to our adjusted operating surplus generated during the period from the closing of this offering until December 31, 2009. We define adjusted operating surplus in our partnership agreement, in “How We Make Cash Distributions — Subordination Period — Definition of Adjusted Operating Surplus” and in the Glossary of Selected Terms included as Appendix B in this prospectus.
Subordination Period		During the subordination period, the subordinated units will not be entitled to receive any distributions until the common units and GP units have received the minimum quarterly distribution of $0.375 per unit plus any arrearages from prior quarters. The subordination period will end once we meet the financial tests in our partnership agreement, but it generally cannot end before          , 2013.
		If we meet the financial tests in our partnership agreement for any three consecutive four-quarter periods ending on or after          , 2011, 25% of the subordinated GP units will convert into GP units on a one-for-one basis. If we meet these financial tests for any three consecutive four-quarter periods ending on or after          , 2012, an additional 25% of the subordinated GP units will convert into GP units on a one-for-one basis. The early conversion of the second 25% of the subordinated GP units may not occur until at least one year following the end of the last four-quarter period in respect of which the first 25% of the subordinated GP units were converted. If the subordinated GP units have converted into

		subordinated LP units at the time the financial tests are met they will convert into common units, rather than GP units.
		In addition, the subordination period will end if our managing general partner is removed as our managing general partner where “cause” (as defined in our partnership agreement) does not exist and no units held by our managing general partner and its affiliates are voted in favor of that removal.
		When the subordination period ends, all subordinated units will convert into GP units or common units on a one-for-one basis, and the common units and GP units will no longer be entitled to arrearages. See “How We Make Cash Distributions — Subordination Period”.
Issuance of additional units		Our partnership agreement authorizes us to issue an unlimited number of additional units and rights to buy units for the consideration and on the terms and conditions determined by our managing general partner without the approval of our unitholders. See “Units Eligible for Future Sale” and “The Partnership Agreement — Issuance of Additional Partnership Interests”.
Limited voting rights		Our managing general partner, together with our special general partner, manages and operates us. Unlike the holders of common stock in a corporation, you will have only limited voting rights on matters affecting our business. You will have no right to elect either of our general partners or our managing general partner’s directors on an annual or other continuing basis. Prior to October 26, 2012, our managing general partner may be removed only for “cause” (as defined in our partnership agreement) by a vote of the holders of at least 80% of the outstanding units, including any units owned by our managing general partner and its affiliates (including CVR Energy), voting together as a single class. On or after October 26, 2012, our managing general partner may be removed with or without cause by a vote of the holders of at least 80% of the outstanding units, including any units owned by our managing general partner and its affiliates (including CVR Energy), voting together as a single class. Upon the completion of this offering, our special general partner, which is indirectly owned by CVR Energy, will own an aggregate of approximately 87% of our outstanding units (approximately 85% if the underwriters exercise their option to purchase additional common units in full). This will give CVR Energy the ability to prevent removal of our managing general partner. See “The Partnership Agreement — Voting Rights”.
Limited call rights		If at any time our managing general partner and its affiliates own more than 80% of the common units, our managing general partner will have the right, but not the obligation, to purchase all of the remaining common units at a purchase price equal to the greater of (x) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the

		call right is first mailed and (y) the highest per-unit price paid by our managing general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. See “The Partnership Agreement — Limited Call Right”.
Estimated ratio of taxable income to distributions		We estimate that if you own the common units you purchase in this offering through the record date for distributions for the period ending December 31, 2011, you will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be     % or less of the cash distributed to you with respect to that period. For example, if you receive an annual distribution of $1.50 per common unit, we estimate that your average allocable taxable income per year will be no more than $      per common unit. See “Material Tax Consequences — Tax Consequences of Unit Ownership — Ratio of Taxable Income to Distributions”.
Material Tax Consequences		For a discussion of material federal income tax consequences that may be relevant to prospective unitholders, see “Material Tax Consequences”.
Exchange Listing		We intend to apply to list our common units on the New York Stock Exchange under the symbol “CVE”.
Risk Factors		See “Risk Factors” beginning on page 21 of this prospectus for a discussion of factors that you should carefully consider before deciding to invest in our common units.

 

Summary Historical and Pro Forma Consolidated Financial Information

			Historical																		Pro Forma
			Immediate
			Predecessor					Successor
			174 Days					191 Days				Year				Year					Year
			Ended					Ended				Ended				Ended					Ended
			June 23,					December 31,				December 31,				December 31,					December 31,
			2005					2005				2006				2007					2007
																					(unaudited)
			(dollars in millions, except per unit data and as otherwise indicated)
Statement of Operations Data:
Net sales			$	76.7				$	96.8			$	170.0			$	187.4				$	187.4
Cost of product sold (exclusive of depreciation and amortization)				9.8					19.2				33.4				33.1					35.6
Direct operating expenses (exclusive of depreciation and amortization)(1)				26.0					29.1				63.6				66.7					66.7
Selling, general and administrative expenses (exclusive of depreciation and amortization)(1)				5.1					4.6				12.9				20.4					20.2
Net costs associated with flood(2)				—					—				—				2.4					2.4
Depreciation and amortization(3)				0.3					8.4				17.1				16.8					16.8
Operating income			$	35.5				$	35.5			$	43.0			$	48.0				$	45.7
Miscellaneous income (expense)(4)				(2.0	)				0.4				(6.9	)			0.2					0.1
Interest (expense) and other financing costs				(0.8	)				(14.8	)			(23.5	)			(23.6	)				(0.9	)
Gain (loss) on derivatives				—					4.9				2.1				(0.5	)				—
Income before income taxes			$	32.7				$	26.0			$	14.7			$	24.1				$	44.9
Income tax expense				—					—				—				—					—
Net income(5)			$	32.7				$	26.0			$	14.7			$	24.1				$	44.9
Financial and Other Data:
Cash flows provided by operating activities				24.3					45.3				34.1				46.5
Cash flows (used in) investing activities				(1.4	)				(2.0	)			(13.3	)			(6.5	)
Cash flows (used in) financing activities				(22.9	)				(43.3	)			(20.8	)			(25.5	)
EBITDA(6)				33.8					48.7				53.9				65.0					63.3
Capital expenditures for property, plant and equipment				1.4					2.0				13.3				6.5
Key Operating Data:
Product pricing (plant gate) (dollars per ton)(7):
Ammonia			$	294				$	348			$	339			$	376
UAN				167					177				164				209
Production volume:
Ammonia (tons in thousands)				193.2					220.0				369.3				326.7
UAN (tons in thousands)				309.9					353.4				633.1				576.9
On-stream factors(8):
Gasifier				97.4	%				98.7	%			92.5	%			90.0	%
Ammonia				95.0	%				98.3	%			89.3	%			87.7	%
UAN				93.9	%				94.8	%			88.9	%			78.7	%

		Historical													Pro Forma
		Successor
		December 31,				December 31,				December 31,					December 31,
		2005				2006				2007					2007
															(unaudited)
Balance Sheet Data:						(in millions)
Cash and cash equivalents		$	—			$	—			$	14.5				$	72.4
Working capital			(2.5	)			(0.5	)			7.5					61.3
Total assets			423.7				416.1				429.9					485.4
Total debt including current portion			—				—				—					—
Partners’ capital/divisional equity			400.5				397.6				400.5					456.0

(1)		Our direct operating expenses (exclusive of depreciation and amortization) and selling, general and administrative expenses (exclusive of depreciation and amortization) for the 191 days ended December 31, 2005, the year ended December 31, 2006 and the year ended December 31, 2007 include a charge related to CVR Energy’s share-based compensation expense allocated to us by CVR Energy for financial reporting purposes in accordance with SFAS 123(R). We are not responsible for the payment of cash related to any share-based compensation allocated to us by CVR Energy. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Share-Based Compensation.” The charges were:

		191 Days ended				Year Ended				Year Ended
		December 31,				December 31,				December 31,
		2005				2006				2007
		(in millions)
Direct operating expenses (exclusive of depreciation and amortization)		$	0.1			$	0.8			$	1.2
Selling, general and administrative expenses (exclusive of depreciation and amortization)			0.2				3.2				9.7
Total		$	0.3			$	4.0			$	10.9

(2)		Total gross costs recorded as a result of the flood damage to our nitrogen fertilizer plant for the year ended December 31, 2007 were approximately $5.8 million, including approximately $0.8 million recorded for depreciation for temporarily idle facilities, $0.7 million for internal salaries and $4.3 million for other repairs and related costs. An insurance receivable of approximately $3.3 million was also recorded for the year December 31, 2007 for the probable recovery of such costs under CVR Energy’s insurance policies.
(3)		Depreciation and amortization is comprised of the following components as excluded from direct operating expenses and selling, general and administrative expenses and as included in net costs associated with flood:

		Historical																		Pro Forma
		Immediate
		Predecessor					Successor
		174 Days					191 Days													Year
		Ended					Ended				Year Ended				Year Ended					Ended
		June 23,					December 31,				December 31,				December 31,					December 31,
		2005					2005				2006				2007					2007
																				(unaudited)
		(in millions)
Depreciation and amortization excluded from direct operating expenses		$	0.3				$	8.3			$	17.1			$	16.8				$	16.8
Depreciation and amortization excluded from selling, general and administrative expenses			—					0.1				—				—					—
Depreciation included in net costs associated with flood			—					—				—				0.8					0.8
Total depreciation and amortization		$	0.3				$	8.4			$	17.1			$	17.6				$	17.6

(4)		Miscellaneous income (expense) is comprised of the following components included in our consolidated statement of operations:

		Historical																		Pro Forma
		Immediate
		Predecessor					Successor
		174 Days					191 Days													Year
		Ended					Ended				Year Ended				Year Ended					Ended
		June 23,					December 31,				December 31,				December 31,					December 31,
		2005					2005				2006				2007					2007
																				(unaudited)
		(in millions)
Interest income		$	—				$	0.5			$	1.4			$	0.3				$	—
Loss on extinguishment of debt			(1.2	)				—				(8.5	)			(0.2	)				—
Other income (expense)			(0.8	)				(0.1	)			0.2				0.1					0.1
Miscellaneous income (expense)		$	(2.0	)			$	0.4			$	(6.9	)		$	0.2				$	0.1

(5)		The following are certain charges and costs that are meaningful to understanding our net income and in evaluating our performance:

		Historical																		Pro Forma
		Immediate
		Predecessor					Successor
		174 Days					191 Days													Year
		Ended					Ended				Year Ended				Year Ended					Ended
		June 23,					December 31,				December 31,				December 31,					December 31,
		2005					2005				2006				2007					2007
																				(unaudited)
		(in millions)
Loss on extinguishment of debt(a)		$	1.2				$	—			$	8.5			$	0.2				$	—
Inventory fair market value adjustment			—					0.7				—				—					—
Interest rate swap			—					0.1				(1.8	)			(1.4	)				—
Share-based compensation expense(b)			—					0.3				4.0				10.9					10.9

(a)		Represents our portion of (1) the write-off of deferred financing costs in connection with the refinancing of the senior secured credit facility of Coffeyville Resources, LLC on June 23, 2005, (2) the write-off in connection with the

		refinancing of the senior secured credit facility of Coffeyville Resources, LLC on December 28, 2006, and (3) the write-off in connection with the repayment and termination of three of the credit facilities of Coffeyville Resources, LLC and Coffeyville Refining & Marketing Holding, Inc., an indirect parent company of Coffeyville Resources, LLC and a subsidiary of CVR Energy, Inc., on October 26, 2007.

(b)		Our direct operating expenses (exclusive of depreciation and amortization) and selling, general and administrative expenses (exclusive of depreciation and amortization) include a charge related to CVR Energy’s share-based compensation expense that was allocated to us by CVR Energy for financial reporting purposes in accordance with SFAS 123(R). See Note 1 above. We are not responsible for the payment of cash related to any share-based compensation expense allocated to us by CVR Energy.

(6)		EBITDA is defined as net income plus interest expense and other financing costs, income tax expense and depreciation and amortization, net of interest income.
		EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors and commercial banks, to assess:
•		the financial performance of our assets without regard to financing methods, capital structure or historical cost basis;
•		the ability of our assets to generate cash sufficient to make distributions to our partners and to pay interest on our indebtedness; and
•		our operating performance and return on invested capital compared to those of other publicly traded limited partnerships, without regard to financing methods and capital structure.
		EBITDA should not be considered an alternative to net income, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA may have material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations. In addition, EBITDA presented by other companies may not be comparable to our presentation, since each company may define these terms differently.
		A reconciliation of our net income to EBITDA is as follows:

		Historical																		Pro Forma
		Immediate
		Predecessor					Successor
		174 Days					191 Days				Year				Year					Year
		Ended					Ended				Ended				Ended					Ended
		June 23,					December 31,				December 31,				December 31,					December 31,
		2005					2005				2006				2007					2007
																				(unaudited)
		(in millions)
Net income		$	32.7				$	26.0			$	14.7			$	24.1				$	44.9
Adjustments:
Interest expense and other financing costs			0.8					14.8				23.5				23.6					0.9
Interest income			—					(0.5	)			(1.4	)			(0.3	)				(0.1	)
Income tax expense			—					—				—				—					—
Depreciation and amortization			0.3					8.4				17.1				17.6					17.6
EBITDA		$	33.8				$	48.7			$	53.9			$	65.0				$	63.3

(7)		Plant gate price per ton represents net sales less freight revenue divided by product sales volume in tons in the reporting period. Plant gate price per ton is shown in order to provide a pricing measure that is comparable across the fertilizer industry.
(8)		On-stream factor is the total number of hours operated divided by the total number of hours in the reporting period. Excluding the impact of turnarounds at the nitrogen fertilizer facility in the third quarter of 2006, the on-stream factors in 2006 would have been 97.1% for gasifier, 94.3% for ammonia and 93.6% for UAN.

 

About This Prospectus

	•	Original Predecessor refers to the one facility within the eight-plant Nitrogen Fertilizer Manufacturing and Marketing Division of Farmland which Coffeyville Resources, LLC acquired on March 3, 2004 in a sale process under Chapter 11 of the U.S. Bankruptcy Code;
	•	Initial Acquisition refers to the acquisition of Original Predecessor on March 3, 2004 by Coffeyville Resources, LLC;
	•	Immediate Predecessor refers to Coffeyville Resources Nitrogen Fertilizers, LLC, the subsidiary of Coffeyville Group Holdings, LLC that held our business between March 3, 2004 and June 24, 2005;
	•	Subsequent Acquisition refers to the acquisition of Immediate Predecessor on June 24, 2005 by Coffeyville Acquisition LLC;
	•	Successor refers to (1) Coffeyville Resources Nitrogen Fertilizers, LLC from June 24, 2005 through October 23, 2007 and (2) CVR Partners, LP and its consolidated subsidiary, Coffeyville Resources Nitrogen Fertilizers, LLC, on and after October 24, 2007; and
	•	The Partnership, we, us and our refer to our business, which is referred to in our financial statements as (1) Original Predecessor until March 3, 2004, (2) Immediate Predecessor from March 3, 2004 until June 24, 2005 and (3) Successor for all periods thereafter, unless the context otherwise requires or as otherwise indicated.

	•	managing general partner refers to CVR GP, LLC, our managing general partner, which is owned by Coffeyville Acquisition III LLC;
	•	special general partner refers to CVR Special GP, LLC, our special general partner, which is indirectly owned by CVR Energy;
	•	general partners refers to our managing general partner and our special general partner;
	•	Coffeyville Resources refers to Coffeyville Resources, LLC, the subsidiary of CVR Energy which was our sole limited partner prior to this offering;
	•	Coffeyville Acquisition III refers to Coffeyville Acquisition III LLC, the owner of our managing general partner, which in turn is owned by the Goldman Sachs Funds, the Kelso Funds and certain members of CVR Energy’s senior management team; and
	•	CVR Energy refers to CVR Energy, Inc., a publicly traded company listed on the New York Stock Exchange under the ticker symbol “CVI”, which following this offering will indirectly own our special general partner and, as a result, will indirectly own approximately 87% of our units.

	•	common units refers to the 5,250,000 common units sold to the public in this offering and common units that may be sold to the public in the future;
	•	GP units refers to the 18,750,000 GP units owned by our special general partner immediately after the closing of this offering;
	•	subordinated GP units refers to the 16,000,000 subordinated units owned by our special general partner immediately after the closing of this offering;

	•	subordinated units refers to our subordinated GP units and any subordinated units representing limited partner interests, or subordinated LP units, into which the subordinated GP units held by our special general partner may be converted;
	•	units refers to our common units, GP units and subordinated units; and
	•	IDRs refer to the incentive distribution rights owned by our managing general partner.

 

You should carefully consider each of the following risks and all of the information set forth in this prospectus before deciding to invest in our common units. If any of the following risks and uncertainties develops into an actual event, our business, financial condition, cash flows or results of operations could be materially adversely affected. In that case, we might not be able to pay distributions on our common units, the trading price of our common units could decline, and you could lose all or part of your investment. Although many of our business risks are comparable to those faced by a corporation engaged in a similar business, limited partner interests are inherently different from the capital stock of a corporation and involve additional risks described below.

 

 

We may not have sufficient cash to enable us to make quarterly distributions on our common units following the payment of expenses and fees, including payments to CVR Energy for management compensation and overhead in accordance with our services agreement, and the establishment of cash reserves.

 

We may not have sufficient cash each quarter to enable us to pay the minimum quarterly distribution or any distributions to our common unitholders. The amount of cash we can distribute on our units principally depends on the amount of cash we generate from our operations, which is primarily dependent upon our selling quantities of nitrogen fertilizer at margins that are high enough to cover our fixed and variable expenses. Our costs, the prices we charge our customers, our level of production and, accordingly, the cash we generate from operations, will fluctuate from quarter to quarter based on, among other things, overall demand for our nitrogen fertilizer products, the level of foreign and domestic production of nitrogen fertilizer products by others, the extent of government regulation and overall economic and local market conditions. In addition:

 

 

For a description of additional restrictions and factors that may affect our ability to make cash distributions, see “Our Cash Distribution Policy and Restrictions on Distributions”.

 

The assumptions underlying the forecast of cash available for distribution that we include in “Our Cash Distribution Policy and Restrictions on Distributions” are inherently uncertain and are subject to significant business, economic, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those forecasted.

 

Our forecast of cash available for distribution set forth in “Our Cash Distribution Policy and Restrictions on Distributions” includes our forecast of results of operations and cash available for distribution for the twelve months ending March 31, 2009. The forecast has been prepared by the management team of CVR Energy on our behalf. Neither our independent registered public accounting firm nor any other independent accountants have examined, compiled or performed any procedures with respect to the forecast, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and they assume no responsibility for the forecast. The assumptions underlying the forecast are inherently uncertain and are subject to significant business, economic, regulatory and competitive risks, including those discussed in this section, that could cause actual results to differ materially from those forecasted. If the forecasted results are not achieved, we may not be able to pay the full minimum quarterly distribution or any amount on the common units, GP units or subordinated units, in which event the market price of the common units may decline materially.

 

The pro forma cash available for distribution data for 2007 which we include in this prospectus does not necessarily reflect the actual cash that would have been available during 2007 had we been a stand-alone company.

 

We have included in this prospectus unaudited pro forma information for the year ended December 31, 2007 which indicates the amount of cash that we would have had available for distribution during that period on a pro forma basis. This pro forma information is based on numerous estimates and assumptions which we believe to be reasonable, but our financial performance, had we been in existence as a separate entity during this entire period and had the Transactions occurred and the coke supply agreement, services agreement, feedstock and shared services agreement, environmental agreement and raw water and facilities agreement been entered into at the beginning of the period, could have been different from the pro forma results, perhaps materially. In particular, the pro forma data assumes that we would have had no debt or interest expense during 2007, but these amounts do not necessarily reflect the debt we might have incurred or the interest that we would have paid as a stand-alone company. Similarly, the pro forma data assumes a specific amount of selling, general and administrative expense for us, but it is difficult to estimate the actual costs that we would have incurred as a stand-alone business. Accordingly, investors should review the unaudited pro forma information, including the related footnotes, together with the other information included elsewhere in this prospectus, including “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Our actual results may differ, possibly materially, from those presented in the unaudited pro forma information.

 

The amount of cash we have available for distribution to unitholders depends primarily on our cash flow and not solely on our profitability. If we have insufficient cash to cover intended distribution payments, we would need to reduce or eliminate distributions to our unitholders or, to the extent permitted under agreements governing indebtedness that we may incur in the future, fund a portion of our distributions with borrowings.

 

The amount of cash we have available for distribution depends primarily on our cash flow, including working capital borrowings, and not solely on profitability, which will be affected by non-cash items. As a result, we may make cash distributions during periods when we record losses and may not make cash distributions during periods when we record net income.

If we do not have sufficient cash to cover intended distribution payments, we would either reduce or eliminate distributions to holders of our units or, to the extent permitted to do so under any revolving line of credit or other debt facility that we may enter into in the future, fund a portion of our distributions with borrowings. If we were to use borrowings under a revolving line of credit or other debt facility to fund distributions, we would have less cash available for future distributions and other purposes, including the funding of our ongoing expenses, our indebtedness levels would increase and our ongoing debt service requirements would increase. This could negatively impact our financial condition, our results of operations, our ability to pursue our business strategy and our ability to make future quarterly distributions. We cannot assure you that borrowings would be available to us under a revolving line of credit or other debt facility to fund distributions.

 

Our nitrogen fertilizer plant has high fixed costs. If nitrogen fertilizer product prices fall below a certain level, which could be caused by a reduction in the price of natural gas, we may not generate sufficient revenue to operate profitably or cover our costs.

 

Our nitrogen fertilizer plant has high fixed costs as discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting Results”. As a result, downtime or low productivity due to reduced demand, interruptions because of adverse weather conditions, equipment failures, low prices for nitrogen fertilizer products or other causes can result in significant operating losses. Unlike our competitors, whose primary costs are related to the purchase of natural gas and whose fixed costs are minimal, we have high fixed costs not dependent on the price of natural gas. All of our competitors use a natural gas-based production method. We have no control over natural gas prices, which can be highly volatile. A decline in natural gas prices generally has the effect of reducing the base sale price for nitrogen fertilizer products in the market generally, while our fixed costs will remain substantially unchanged by the decline in natural gas prices. Any decline in the price of nitrogen fertilizer products could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

The nitrogen fertilizer business is cyclical and volatile, which exposes us to potentially significant fluctuations in our financial condition, cash flows and results of operations, which could result in volatility in the price of our common units or an inability to make quarterly distributions on our common units.

 

A significant portion of our product sales consists of sales of agricultural commodity products, exposing us to fluctuations in supply and demand in the agricultural industry. These fluctuations historically have had and could in the future have significant effects on prices across all nitrogen fertilizer products and, in turn, our financial condition, cash flows and results of operations, which could result in significant volatility in the price of our common units or an inability to make quarterly cash distributions on our common units. Nitrogen fertilizer products are commodities, the price of which can be volatile. The prices of nitrogen fertilizer products depend on a number of factors, including general economic conditions, cyclical trends in end-user markets, supply and demand imbalances, and weather conditions, which have a greater relevance because of the seasonal nature of fertilizer application. If seasonal demand exceeds our projections, our customers may acquire nitrogen fertilizer products from our competitors, and our profitability will be negatively impacted. If seasonal demand is less than we expect, we will be left with excess inventory that will have to be stored or liquidated.

 

Demand for nitrogen fertilizer products is dependent, in part, on demand for crop nutrients by the global agricultural industry. Nitrogen-based fertilizers are currently in high demand, driven by a growing world population, changes in dietary habits and an expanded use of corn for the production of ethanol. Supply is affected by available capacity and operating rates, raw material costs, government policies and global trade. In the past, periods of high demand, high capacity utilization, and increasing operating margins have tended in light of the low technological barriers to entry to the nitrogen fertilizer production market to result in new plant investment and increased production until supply

exceeds demand, followed by periods of declining prices and declining capacity utilization until the cycle is repeated.

 

The prices for nitrogen fertilizers are currently extremely high. Nitrogen fertilizer prices may not remain at current levels and could fall, perhaps materially. A decrease in nitrogen fertilizer prices would have a material adverse effect on our business, cash flow and ability to make distributions.

 

Nitrogen fertilizer products are global commodities, and we face intense competition from other nitrogen fertilizer producers.

 

Our business is subject to intense price competition from both U.S. and foreign sources, including competitors operating in the Persian Gulf, the Asia-Pacific region, the Caribbean, Russia and the Ukraine. Fertilizers are global commodities, with little or no product differentiation, and customers make their purchasing decisions principally on the basis of delivered price and availability of the product. We compete with a number of U.S. producers and producers in other countries, including state-owned and government-subsidized entities. The United States and the European Union have trade regulatory measures in effect that are designed to address this type of unfair trade, but there is no guarantee that such anti-dumping orders will continue. Changes in these measures could have a material adverse impact on the sales and profitability of the particular products involved. Some competitors have greater total resources and are less dependent on earnings from fertilizer sales, which makes them less vulnerable to industry downturns and better positioned to pursue new expansion and development opportunities. Competitors utilizing different corporate structures may be better able to withstand lower cash flows than we can as a limited partnership. In addition, recent consolidation in the fertilizer industry has increased the resources of several competitors. In light of this industry consolidation, our competitive position could suffer to the extent we are not able to expand our own resources either through investments in new or existing operations or through acquisitions, joint ventures or partnerships. In addition, if natural gas prices in the United States were to decline to a level that prompts those U.S. producers who have permanently or temporarily closed production facilities to resume fertilizer production, this would likely contribute to a global supply/demand imbalance that could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. An inability to compete successfully could result in the loss of customers, which could adversely affect our sales and profitability.

 

Adverse weather conditions during peak fertilizer application periods may have a material adverse effect on our results of operations, financial condition and ability to make cash distributions, because our agricultural customers are geographically concentrated.

 

Our sales of nitrogen fertilizer products to agricultural customers are concentrated in the Great Plains and Midwest states and are seasonal in nature. For example, we generate greater net sales and operating income in the spring. Accordingly, an adverse weather pattern affecting agriculture in these regions or during this season could have a negative effect on fertilizer demand, which could, in turn, result in a material decline in our net sales and margins and otherwise have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. Our quarterly results may vary significantly from one year to the next due primarily to weather-related shifts in planting schedules and purchase patterns, as well as the relationship between natural gas and nitrogen fertilizer product prices.

 

Our results of operations, financial condition and ability to make cash distributions may be adversely affected by the supply and price levels of pet coke and other essential raw materials.

 

Pet coke is a key raw material used by us in the manufacture of nitrogen fertilizer products. Increases in the price of pet coke could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. Moreover, if pet coke prices increase we may not be able to increase our prices to recover increased pet coke costs, because market prices for our nitrogen fertilizer products are generally correlated with natural gas prices, the primary raw material

used by our competitors, and not pet coke prices. Our profitability is directly affected by the price and availability of pet coke obtained from CVR Energy’s oil refinery pursuant to a 20-year agreement and pet coke purchased from third parties. Based on our current output, we obtain most (over 75% on average during the last four years) of the pet coke we need from CVR Energy’s adjacent oil refinery, and procure the remainder on the open market. We are sensitive to fluctuations in the price of pet coke on the open market. Our competitors are not subject to changes in pet coke prices, and the price of pet coke we purchase from CVR Energy varies based on market prices. Pet coke prices could significantly increase in the future. We might also be unable to find alternative suppliers to make up for any reduction in the amount of pet coke we obtain from CVR Energy.

 

In addition, we rely on the air separation plant owned by The Linde Group, or Linde, to provide oxygen, nitrogen and compressed dry air to our gasifier. This air separation plant has experienced numerous momentary interruptions, thereby causing interruptions in our gasifier operations. Our operations require a reliable supply of raw materials. A disruption of our supply could prevent us from producing our products at current levels and our reputation, customer relationships, results of operations and cash flow could be materially harmed.

 

We may not be able to maintain an adequate supply of pet coke and other essential raw materials. In addition, we could experience production delays or cost increases if alternative sources of supply prove to be more expensive or difficult to obtain. If raw material costs were to increase, or if our nitrogen fertilizer plant were to experience an extended interruption in the supply of raw materials, including pet coke, to its production facilities, we could lose sale opportunities, damage our relationships with or lose customers, suffer lower margins and experience other material adverse effects to our results of operations, financial condition and ability to make cash distributions.

 

Ammonia can be very volatile and dangerous. Any liability for accidents involving ammonia that cause severe damage to property and/or injury to the environment and human health could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. In addition, the costs of transporting ammonia could increase significantly in the future.

 

We manufacture, process, store, handle, distribute and transport ammonia, which can be very volatile and dangerous. Accidents, releases or mishandling involving ammonia could cause severe damage or injury to property, the environment and human health, as well as a possible disruption of supplies and markets. Such an event could result in civil lawsuits, fines, penalties and regulatory enforcement proceedings, which could lead to significant liabilities. Any damage to persons, equipment or property or other disruption of our ability to produce or distribute our products could result in a significant decrease in operating revenues and significant additional cost to replace or repair and insure our assets, which could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. We experienced an ammonia release most recently in August 2007. In addition, we may incur significant losses or costs relating to the operation of railcars used for the purpose of carrying various products, including ammonia. Due to the dangerous and potentially toxic nature of the cargo, in particular ammonia, on board railcars, a railcar accident may result in uncontrolled or catastrophic circumstances, including fires, explosions and pollution. These circumstances may result in severe damage and/or injury to property, the environment and human health. In the event of pollution, we may be strictly liable. If we are strictly liable, we could be held responsible even if we are not at fault and we complied with the laws and regulations in effect at the time of the accident. Litigation arising from accidents involving ammonia may result in our being named as a defendant in lawsuits asserting claims for large amounts of damages, which could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Given the risks inherent in transporting ammonia, the costs of transporting ammonia could increase significantly in the future. Ammonia is most typically transported by railcar. A number of initiatives are underway in the railroad and chemical industries that may result in changes to railcar

design in order to minimize railway accidents involving hazardous materials. If any such design changes are implemented, or if accidents involving hazardous freight increase the insurance and other costs of railcars, our freight costs could significantly increase.

 

Our operations are dependent on the pet coke we obtain from CVR Energy. Failure by CVR Energy to continue to supply us with pet coke, or CVR Energy’s imposition of an obligation to provide it with security for our payment obligations, could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

On average during the last four years, we have obtained more than 75% of the pet coke used by our nitrogen fertilizer plant from CVR Energy. We currently obtain pet coke from CVR Energy pursuant to an agreement that extends through 2027. The price that we pay CVR Energy for pet coke is based on the lesser of a pet coke price derived from the price we receive for UAN (subject to a UAN-based price ceiling and floor) and a pet coke index price. In most cases, the price we pay CVR Energy will be lower than the price which we would otherwise pay to third parties. Should CVR Energy fail to perform in accordance with our existing agreement, we would need to purchase pet coke from third parties on the open market, which could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. Purchasing pet coke from third parties rather than CVR Energy will significantly increase our pet coke expense (as in 2007) and have a material adverse effect on our business, cash flow and ability to make distributions. Also, we currently purchase 100% of the pet coke CVR Energy produces. Accordingly, if we increase our production, we will be more dependent on pet coke purchases from third party suppliers at open market prices. There is no assurance that we would be able to purchase pet coke on comparable terms from third parties or at all.

 

Under our pet coke agreement with CVR Energy, we may become obligated to provide security for our payment obligations if, in CVR Energy’s sole judgment, there is a material adverse change in our financial condition or liquidity position or in our ability to pay for our pet coke purchases. See “Certain Relationships and Related Party Transactions — Agreements with CVR Energy — Coke Supply Agreement”.

 

Our operations are dependent on a limited number of third-party suppliers. Failure by key suppliers of oxygen, nitrogen and electricity to perform in accordance with their contractual obligations may have a negative effect upon our results of operations and financial condition.

 

Our operations depend in large part on the performance of third-party suppliers, including Linde for the supply of oxygen and nitrogen and the City of Coffeyville for the supply of electricity. Our contract with Linde extends through 2020 and our electricity contract extends through 2019. Should these suppliers fail to perform in accordance with the existing contractual arrangements, our operations would be forced to a halt. Alternative sources of supply of oxygen, nitrogen or electricity could be difficult to obtain. Any shutdown of operations at the nitrogen fertilizer business even for a limited period could have a material negative impact on our results of operations, financial condition and ability to make cash distributions.

 

We rely on third party providers of transportation services and equipment, which subjects us to risks and uncertainties beyond our control that may have a material adverse effect on our results of operations, financial condition and ability to make distributions.

 

We rely on railroad and trucking companies to ship finished products to our customers. We also lease rail cars from rail car owners in order to ship our finished products. These transportation operations, equipment, and services are subject to various hazards, including extreme weather conditions, work stoppages, delays, spills, derailments and other accidents and other operating hazards.

 

These transportation operations, equipment and services are also subject to environmental, safety, and regulatory oversight. Due to concerns related to terrorism or accidents, local, state and federal governments could implement new regulations affecting the transportation of our finished products. In addition, new regulations could be implemented affecting the equipment used to ship our finished products.

Any delay in our ability to ship our finished products as a result of these transportation companies’ failure to operate properly, the implementation of new and more stringent regulatory requirements affecting transportation operations or equipment, or significant increases in the cost of these services or equipment, could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Environmental laws and regulations could require us to make substantial capital expenditures to remain in compliance or to remediate current or future contamination that could give rise to material liabilities.

 

Our operations are subject to a variety of federal, state and local environmental laws and regulations relating to the protection of the environment, including those governing the emission or discharge of pollutants into the environment, product specifications and the generation, treatment, storage, transportation, disposal and remediation of solid and hazardous waste and materials. Violations of these laws and regulations or permit conditions can result in substantial penalties, injunctive orders compelling installation of additional controls, civil and criminal sanctions, permit revocations and/or facility shutdowns.

 

In addition, new environmental laws and regulations, new interpretations of existing laws and regulations, increased governmental enforcement of laws and regulations or other developments could require us to make additional unforeseen expenditures. Many of these laws and regulations are becoming increasingly stringent, and the cost of compliance with these requirements can be expected to increase over time. The requirements to be met, as well as the technology and length of time available to meet those requirements, continue to develop and change. These expenditures or costs for environmental compliance could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. Future environmental laws and regulations, or new interpretations of existing laws or regulations, also could limit our ability to market and sell our products to end users.

 

Our facility operates under a number of federal and state permits, licenses and approvals with terms and conditions containing a significant number of prescriptive limits and performance standards in order to operate. Our facility is also required to meet compliance with prescriptive limits and performance standards specific to chemical facilities as well as to general manufacturing facilities. All of these permits, licenses, approvals and standards require a significant amount of monitoring, record keeping and reporting in order to demonstrate compliance with the underlying permit, license, approval or standard. Inspections by federal and state governmental agencies may uncover incomplete documentation of compliance status that may result in the imposition of fines, penalties and injunctive relief that could have a material adverse effect on our ability to operate our facilities. Additionally, due to the nature of our manufacturing processes, there may be times when we are unable to meet the standards and terms and conditions of these permits and licenses, or we may be subject to standards where government agencies have no enforcement discretion, which may lead to the imposition of fines and penalties or operating restrictions that may have a material adverse effect on our ability to operate our facilities and accordingly our financial performance.

 

Our business is inherently subject to accidental spills, discharges or other releases of hazardous substances into the environment and neighboring areas. Past or future spills related to our nitrogen fertilizer plant or transportation of products or hazardous substances from our facility may give rise to liability (including strict liability, or liability without fault, and potential cleanup responsibility) to governmental entities or private parties under federal, state or local environmental laws, as well as under common law. For example, we could be held strictly liable under the Comprehensive Environmental Responsibility, Compensation and Liability Act, or CERCLA, for past or future spills without regard to fault or whether our actions were in compliance with the law at the time of the spills. Pursuant to CERCLA and similar state statutes, we could be held liable for contamination associated with the facility we currently own and operate, facilities we formerly owned or operated (if any) and facilities to which we transported or arranged for the transportation of wastes or by-products

containing hazardous substances for treatment, storage, or disposal. The potential penalties and cleanup costs for past or future releases or spills, liability to third parties for damage to their property or exposure to hazardous substances, or the need to address newly discovered information or conditions that may require response actions could be significant and could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

In addition, we may face liability for alleged personal injury or property damage due to exposure to chemicals or other hazardous substances located at or released from our facility. We may also face liability for personal injury, property damage, natural resource damage or for cleanup costs for the alleged migration of contamination or other hazardous substances from our facility to adjacent and other nearby properties.

 

We may face future liability for the off-site disposal of hazardous wastes. Pursuant to CERCLA, companies that dispose of, or arrange for the transportation or disposal of, hazardous substances at off-site locations can be held jointly and severally liable for the costs of investigation and remediation of contamination at those off-site locations, regardless of fault. We could become involved in litigation or other proceedings involving off-site waste disposal and the damages or costs in any such proceedings could be material.

 

Environmental laws and regulations on fertilizer end-use and application could have a material adverse impact on fertilizer demand in the future.

 

Future environmental laws and regulations on the end-use and application of fertilizers could cause changes in demand for our products in our markets. In addition, future environmental laws and regulations, or new interpretations of existing laws or regulations, could limit our ability to market and sell our products to end users. From time to time, various state legislatures have proposed bans or other limitations on fertilizer products. Any such future laws or regulations could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

CO₂ and other greenhouse gas emissions may be the subject of federal or state legislation or regulated in the future by the EPA as an air pollutant, requiring us to obtain additional permits, install additional controls, or purchase credits to reduce greenhouse gas emissions which could adversely affect our financial performance.

 

The United States Congress has considered various proposals to reduce greenhouse gas emissions, but none have become law, and presently, there are no federal mandatory greenhouse gas emissions requirements. While it is probable that Congress will adopt some form of federal mandatory greenhouse gas emission reductions legislation in the future, the timing and specific requirements of any such legislation are uncertain at this time. In the absence of existing federal regulations, a number of states have adopted regional greenhouse gas initiatives to reduce CO₂ and other greenhouse gas emissions. In 2007, a group of Midwest states, including Kansas (where our facility is located) formed the Midwestern Greenhouse Gas Accord, which calls for the development of a cap-and-trade system to control greenhouse gas emissions and for the inventory of such emissions. However, the individual states that have signed on to the accord must adopt laws or regulations implementing the trading scheme before it becomes effective, and the timing and specific requirements of any such laws or regulations in Kansas are uncertain at this time.

 

In 2007, the U.S. Supreme Court decided that CO₂ is an air pollutant under the federal Clean Air Act for the purposes of vehicle emissions. Similar lawsuits have been filed seeking to require the EPA to regulate CO₂ emissions from stationary sources, such as our fertilizer plant, under the federal Clean Air Act. Our plant produces significant amounts of CO₂ that are vented into the atmosphere. If the EPA regulates CO₂ emissions from plants such as ours, we may have to apply for additional permits, install additional controls to reduce CO₂ emissions or take other as yet unknown steps to comply with these potential regulations. For example, we may have to purchase CO₂ emission reduction credits to reduce our current emissions of CO₂ or to offset increases in CO₂ emissions associated with expansions of our operations.

Compliance with any future legislation or regulation of greenhouse gas emissions, if it occurs, may have a material adverse effect on our results of operations, financial condition, and ability to make distributions.

 

A major factor underlying the current high level of demand for our nitrogen-based fertilizer products is the expanding production of ethanol. A decrease in ethanol production, an increase in ethanol imports or a shift away from corn as a principal raw material used to produce ethanol could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

A major factor underlying the current high level of demand for our nitrogen-based fertilizer products is the expanding production of ethanol in the United States and the expanded use of corn in ethanol production. Ethanol production in the United States is highly dependent upon a myriad of federal and state legislation and regulations, and is made significantly more competitive by various federal and state incentives. Such incentive programs may not be renewed, or if renewed, they may be renewed on terms significantly less favorable to ethanol producers than current incentive programs. Recent studies showing that expanded ethanol production may increase the level of greenhouse gases in the environment may reduce political support for ethanol production. The elimination or significant reduction in ethanol incentive programs could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Imported ethanol is generally subject to a $0.54 per gallon tariff and a 2.5% ad valorem tax. This tariff is set to expire on December 31, 2008. This tariff may not be renewed, or if renewed, it may be renewed on terms significantly less favorable for domestic ethanol production than current incentive programs. We do not know the extent to which the volume of imports would increase or the effect on U.S. prices for ethanol if the tariff is not renewed beyond its current expiration. The elimination of tariffs on imported ethanol may negatively impact the demand for domestic ethanol, which could lower U.S. corn and other new grain production and thereby have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Most ethanol is currently produced from corn and other raw grains, such as milo or sorghum — especially in the Midwest. The current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass, such as agricultural waste, forest residue, municipal solid waste and energy crops. This trend is driven by the fact that cellulose-based biomass is generally cheaper than corn, and producing ethanol from cellulose-based biomass would create opportunities to produce ethanol in areas that are unable to grow corn. Although current technology is not sufficiently efficient to be competitive, new conversion technologies may be developed in the future. If an efficient method of producing ethanol from cellulose-based biomass is developed, the demand for corn may decrease, which could reduce demand for our nitrogen fertilizers, which could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Our facility faces operating hazards and interruptions. We could face potentially significant costs to the extent these hazards or interruptions are not fully covered by our existing insurance coverage. Insurance companies that currently insure companies in our industry may cease to do so or may substantially increase premiums in the future.

 

Our operations, located in a single location, are subject to significant operating hazards and interruptions. If our facility experiences a major accident or fire, is damaged by severe weather, flooding or other natural disaster, or is otherwise forced to curtail its operations or shut down, we could incur significant losses which could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. In addition, a major accident, fire, flood, or other event could damage our facility or the environment and the surrounding community or result in injuries or loss of life. For example, the flood that occurred during the weekend of June 30, 2007 shut down our facility for approximately two weeks and required significant expenditures to repair damaged

equipment. Moreover, our facility is located adjacent to CVR Energy’s refining operations and a major accident or disaster at CVR Energy’s operations could adversely affect our operations.

 

If our facility experiences a major accident or fire or other event or an interruption in supply or operations, our business could be materially adversely affected if the damage or liability exceeds the amounts of business interruption, property, terrorism and other insurance that we benefit from or maintain against these risks and successfully collect. We are currently a beneficiary under CVR Energy’s insurance policies. CVR Energy maintains property and business interruption insurance capped at $1 billion which is subject to various deductibles and sub-limits for particular types of coverage (e.g., $300 million for a loss caused by flood). In the event of a business interruption, we would not be entitled to recover our losses until the interruption exceeds 45 days in the aggregate. We are fully exposed to losses in excess of this dollar cap and the various sub-limits, or business interruption losses that occur in the 45 days of our deductible period. These losses may be material. For example, our lost revenue caused by the business interruption following the flood that occurred during the weekend of June 30, 2007 cannot be claimed because it was lost within 45 days of the start of the flood.

 

We expect that we will need to obtain our own stand-alone insurance policies when CVR Energy’s policies come up for annual renewal in July and September 2008. We do not presently know the terms or cost of the insurance that we will be able to obtain at that time. If significant changes in the number or financial solvency of insurance underwriters for our industry occur, we may be unable to obtain and maintain adequate insurance at a reasonable cost or we might need to significantly increase our retained exposures. Insurance companies that have historically participated in underwriting facilities in our industry could elect to discontinue that practice, or demand significantly higher premiums or deductibles to cover these facilities.

 

Our nitrogen fertilizer plant, or individual units within our plant, will require scheduled or unscheduled downtime for maintenance or repairs from time to time.

 

Our nitrogen fertilizer plant, or individual units within our plant, will require scheduled or unscheduled downtime for maintenance or repairs. In general, our facility requires scheduled turnaround maintenance every two years and the next scheduled turnaround is currently expected to occur in the third quarter of 2008. Scheduled and unscheduled maintenance could reduce our net income and cash flow during the period of time that any of our units is not operating.

 

The location of our nitrogen fertilizer plant provides us with a transportation cost advantage over many of our competitors. However, there is no assurance that our competitors’ transportation costs will not decline, reducing our price advantage.

 

Our nitrogen fertilizer plant is located within the U.S farm belt, where the majority of the end users of our nitrogen fertilizer products grow their crops. Accordingly, we currently have a transportation cost advantage over many of our competitors, who produce fertilizer outside of this region and incur greater costs in transporting their products over longer distances via ships and pipelines. There can be no assurance that our competitors’ transportation costs will not decline or that additional pipelines will not be built, lowering the price at which our competitors can sell their products, which would have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

We are subject to strict laws and regulations regarding employee safety, and failure to comply with these laws and regulations could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Our facility is subject to the requirements of the federal Occupational Safety and Health Act, or OSHA, and comparable state statutes that regulate the protection of the health and safety of workers. In addition, OSHA requires that we maintain information about hazardous materials used or produced

in our operations and that we provide this information to employees, state and local governmental authorities, and local residents. Failure to comply with OSHA requirements, including general industry standards, record keeping requirements and monitoring of occupational exposure to regulated substances, could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions if we are subjected to significant fines or compliance costs.

 

Our business depends on significant customers, and the loss of one or several significant customers may have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Our business has a high concentration of customers. In the aggregate our top five ammonia customers represented 55.1%, 51.5% and 62.2% of our ammonia sales for the years ended December 31, 2005, 2006 and 2007, respectively, and our top five UAN customers represented 42.4%, 31.2% and 38.6% of our UAN sales, respectively, for the same periods. Several significant ammonia and UAN customers each account for more than 10% of sales of ammonia and UAN, respectively. Given the nature of our business, and consistent with industry practice, we do not have long-term minimum purchase contracts with any of our customers. The loss of one or several of these significant customers, or a significant reduction in purchase volume by any of them, could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

We may not be able to successfully implement our business strategies, which include completion of significant capital programs.

 

One of our business strategies is to implement a number of capital expenditure projects designed to increase productivity, efficiency and profitability. Many factors may prevent or hinder implementation of some or all of these projects, including compliance with or liability under environmental regulations, technical or mechanical problems, lack of availability of capital and other factors. Costs and delays have increased significantly during the past few years and the large number of capital projects underway in the industry has led to shortages in skilled craftsmen, engineering services and equipment manufacturing. Failure to successfully implement these profit-enhancing strategies may materially adversely affect our business prospects and competitive position. These risks include delays and incurrence of additional and unforeseen costs.

 

Our acquisition and expansion strategy involves significant risks.

 

We intend to consider pursuing acquisitions and expansion projects in order to continue to grow and increase profitability. However, acquisitions and expansions involve numerous risks and uncertainties, including intense competition for suitable acquisition targets; the potential unavailability of financial resources necessary to consummate acquisitions and expansions; difficulties in identifying suitable acquisition targets and expansion projects or in completing any transactions identified on sufficiently favorable terms; and the need to obtain regulatory or other governmental approvals that may be necessary to complete acquisitions and expansions. In addition, any future acquisitions may entail significant transaction costs and risks associated with entry into new markets and lines of business.

 

In addition, even when acquisitions are completed, integration of acquired entities can involve significant difficulties, such as

 

 

 

In addition, in connection with any potential acquisition or expansion project, we will need to consider whether the business we intend to acquire or expansion project we intend to pursue (including the CO₂ sequestration or sale project we are considering) could affect our tax treatment as a partnership for federal income tax purposes. If we are otherwise unable to conclude that the activities of the business being acquired or the expansion project would not affect our treatment as a partnership for federal income tax purposes, we may elect to seek a ruling from the Internal Revenue Service, or IRS. Seeking such a ruling could be costly or, in the case of competitive acquisitions, place us in a competitive disadvantage compared to other potential acquirers who do not seek such a ruling. If we are unable to conclude that an activity would not affect our treatment as a partnership for federal income tax purposes, we may choose to acquire such business or develop such expansion project in a corporate subsidiary, which would subject the income related to such activity to entity-level taxation. See “— Tax Risks — Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the IRS were to treat us as a corporation for federal income tax purposes or if we were to become subject to additional amounts of entity-level taxation for state tax purposes, then our cash available for distribution to you would be substantially reduced” and “Material Tax Consequences — Partnership Status”.

 

Failure to manage these acquisition and expansion growth risks could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. There can be no assurance that we will be able to consummate any acquisitions or expansions, successfully integrate acquired entities, or generate positive cash flow at any acquired company or expansion project.

 

The assets and businesses that we may acquire from CVR Energy or others in the future may expose us to significant additional risks, compliance costs and liabilities.

 

We intend to grow through the acquisition from CVR Energy and third parties of additional infrastructure assets relating to fertilizer transportation and storage, petroleum storage, petroleum transportation and crude oil gathering. In particular, we may in the future acquire assets from CVR Energy, including (1) a 25,000 bpd crude oil gathering system, (2) storage and terminal facilities for asphalt and refined fuels and (3) a 145,000 bpd pipeline system that transports crude oil to CVR Energy’s Coffeyville refinery and associated crude oil storage tanks with a capacity of approximately 1.2 million barrels, although we have no agreement or understanding with respect to future acquisitions from CVR Energy, and CVR Energy has not announced any intention to sell or dispose of these assets.

 

The acquisition of infrastructure assets may expose us to risks in the future that are different than or incremental to the risks we face with respect to our nitrogen fertilizer facility. The storage and transportation of liquid hydrocarbons, including crude oil and refined products, are subject to stringent federal, state, and local laws and regulations governing the discharge of materials into the environment, operational safety and related matters. Compliance with these laws and regulations could be expensive. Moreover, failure to comply with these laws and regulations may result in the assessment of administrative, civil, and criminal penalties, the imposition of investigatory and remedial

liabilities, the issuance of injunctions that may restrict or prohibit our operations, or claims of damages to property or persons resulting from our operations.

 

Any pipeline assets that we may acquire will expose us to the risk of releasing hazardous materials into the environment. These releases would expose us to potentially substantial expenses, including cleanup and remediation costs, fines and penalties, and third party claims for personal injury or property damage related to past or future releases. The storage and terminal facilities for asphalt and refined fuels that we may acquire are also subject to significant compliance costs and liabilities. In addition, because of their increased volatility and tendency to migrate farther and faster than crude oil, releases of refined products into the environment can have an even more significant impact than releases of crude oil and can require significantly higher expenditures in order to respond and remediate. Accordingly, if we do acquire any of such businesses or assets, we could also incur additional expenses not covered by insurance which could be material.

 

Crude oil gathering systems are also subject to additional risks and uncertainties. Crude oil production from reserves and wells will naturally decline over time. To maintain or increase throughput levels at any gathering system, the gathering business must obtain new sources of crude oil supply. Fluctuations in energy prices can greatly affect production rates and investments by third parties in the development of new oil reserves. Drilling activity generally decreases as oil prices decrease. If the gathering business is not able to obtain new supplies of oil to replace the natural decline in volumes from existing wells due to reductions in drilling activity or competition, throughput on the gathering system would decline.

 

We do not have our own executive officers and rely solely on the officers of CVR Energy to manage our business and affairs.

 

Our future performance depends to a significant degree upon the continued contributions of CVR Energy’s senior management team. We have entered into a services agreement with our managing general partner and CVR Energy whereby CVR Energy has agreed to provide us with the services of its senior management team. Following the first anniversary of the date of this offering, CVR Energy can terminate this agreement at any time, subject to a 90-day notice period. The loss or unavailability to us of any member of CVR Energy’s senior management team could negatively affect our ability to operate our business and pursue our business strategies. We do not have employment agreements with any of CVR Energy’s officers and we do not maintain any key person insurance. We can provide no assurance that CVR Energy will continue to provide us the officers that are necessary for the conduct of our business nor that such provision will be on terms that are acceptable. If CVR Energy elected to terminate the agreement on 90 days’ notice, we might not be able to find qualified individuals to serve as our executive officers within such 90-day period.

 

We also rely on the technical personnel who operate our nitrogen fertilizer facility. To the extent that the services of our key technical personnel become unavailable to us for any reason, we would be required to hire other personnel. We may not be able to locate or employ such qualified personnel on acceptable terms or at all. We face competition for these professionals from our competitors, our customers and other companies operating in our industry.

 

New regulations concerning the transportation of hazardous chemicals, risks of terrorism and the security of chemical manufacturing facilities could result in higher operating costs.

 

The costs of complying with regulations relating to the transportation of hazardous chemicals and security associated with our nitrogen fertilizer facility may have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. Targets such as chemical manufacturing facilities may be at greater risk of future terrorist attacks than other targets in the United States. The chemical industry has responded to the issues that arose due to the terrorist attacks on September 11, 2001 by starting new initiatives relating to the security of chemical industry facilities and the transportation of hazardous chemicals in the United States. Future terrorist attacks

could lead to even stronger, more costly initiatives. Simultaneously, local, state and federal governments have begun a regulatory process that could lead to new regulations impacting the security of chemical plant locations and the transportation of hazardous chemicals. Our business or our customers’ businesses could be materially adversely affected by the cost of complying with new regulations.

 

We may face third-party claims of intellectual property infringement, which if successful could result in significant costs for our business.

 

There are currently no claims pending against us relating to the infringement of any third-party intellectual property rights. However, in the future we may face claims of infringement that could interfere with our ability to use technology that is material to our business operations. Any litigation of this type, whether successful or unsuccessful, could result in substantial costs to us and diversions of our resources, either of which could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. In the event a claim of infringement against us is successful, we may be required to pay royalties or license fees for past or continued use of the infringing technology, or we may be prohibited from using the infringing technology altogether. If we are prohibited from using any technology as a result of such a claim, we may not be able to obtain licenses to alternative technology adequate to substitute for the technology we can no longer use, or licenses for such alternative technology may only be available on terms that are not commercially reasonable or acceptable to us. In addition, any substitution of new technology for currently licensed technology may require us to make substantial changes to our manufacturing processes or equipment or to our products, and could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

If licensed technology is no longer available, our business may be adversely affected.

 

We have licensed, and may in the future license, a combination of patent, trade secret and other intellectual property rights of third parties for use in our business. If any of these license agreements were to be terminated, licenses to alternative technology may not be available, or may only be available on terms that are not commercially reasonable or acceptable. In addition, any substitution of new technology for currently-licensed technology may require substantial changes to manufacturing processes or equipment and may have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Our new revolving secured credit facility may contain significant limitations on distributions and other payments.

 

Upon the closing of this offering, we expect to enter into a new revolving secured credit facility. We anticipate that as of December 31, 2007, on a pro forma basis after giving effect to this offering and the use of proceeds hereof and the establishment of our new revolving secured credit facility, we would have had no debt outstanding and incremental borrowing capacity of approximately $      million. We and our subsidiary may be able to incur significant additional indebtedness in the future. We anticipate that both our ability to make distributions to holders of our units and our ability to borrow under this new credit facility to fund distributions will be subject to covenant restrictions under the agreement governing this credit facility. If we were unable to comply with any such covenant restrictions in any quarter, our ability to make intended distribution payments would be curtailed or limited.

 

In addition, we will be subject to covenants contained in agreements governing our new revolving secured credit facility and any other future indebtedness. These covenants include and will likely include restrictions on certain payments, the granting of liens, the incurrence of additional indebtedness, dividend restrictions affecting subsidiaries, asset sales, transactions with affiliates and mergers, acquisitions and consolidations. We expect that our new revolving secured credit facility will prohibit the payment of cash distributions if we are not in compliance with certain financial or other

covenants. Any failure to comply with these covenants could result in a default under our new revolving secured credit facility. Upon a default, unless waived, the lenders under our new revolving secured credit facility would have all remedies available to a secured lender, and could elect to terminate their commitments, cease making further loans, cause their loans to become due and payable in full, institute foreclosure proceedings against our or our subsidiary’s assets, and/or force us and our subsidiary into bankruptcy or liquidation.

 

Borrowings under our new revolving secured credit facility will bear interest at variable rates. If market interest rates increase, such variable-rate debt will create higher debt service requirements, which could adversely affect our cash flow.

 

In addition to our debt service obligations, our operations require substantial investments on a continuing basis. Our ability to make scheduled debt payments, to refinance our obligations with respect to our indebtedness and to fund capital and non-capital expenditures necessary to maintain the condition of our operating assets, properties and systems software, as well as to provide capacity for the growth of our business, depends on our financial and operating performance, which, in turn, is subject to prevailing economic conditions and financial, business, competitive, legal and other factors.

 

If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing distributions, reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing our debt, or seeking additional equity capital or bankruptcy protection. We may not be able to take any of these actions on satisfactory terms or at all.

 

We are a holding company and depend upon our subsidiary for our cash flow.

 

We are a holding company. All of our operations are conducted and all of our assets are owned by Coffeyville Resources Nitrogen Fertilizers, LLC, our wholly-owned subsidiary and our sole direct or indirect subsidiary. Consequently, our cash flow and our ability to meet our obligations or to make distributions in the future will depend upon the cash flow of our subsidiary and the payment of funds by our subsidiary to us in the form of dividends or otherwise. The ability of our subsidiary to make any payments to us will depend on its earnings, the terms of its indebtedness, including the terms of any credit facilities, and legal restrictions. In particular, future credit facilities may impose significant limitations on the ability of our subsidiary to make distributions to us and consequently our ability to make distributions to our unitholders. See also “— We may not have sufficient cash to enable us to make quarterly distributions on our common units following the payment of expenses and fees, including payments to CVR Energy for management compensation and overhead in accordance with our services agreement, and the establishment of cash reserves”.

 

We have never operated as a stand-alone company.

 

Because we have never operated as a stand-alone company, it is difficult for you to evaluate our business and results of operations to date and to assess our future prospects and viability. Our nitrogen fertilizer facility commenced operations in 2000. Prior to March 4, 2004, we were operated as one of eight fertilizer facilities within Farmland. From March 4, 2004 to June 23, 2005, we were operated by the Immediate Predecessor as part of a larger company together with a petroleum refining company, and from June 23, 2005 until the closing date of this offering we were operated by Successor and CVR Energy as part of a larger company together with a petroleum refining company. As a result, the financial information reflecting our business contained in this prospectus, including the pro forma financial information, does not necessarily reflect what our operating performance would have been had we been a stand-alone company during the periods presented.

 

Recent favorable operating conditions may not continue.

 

The financial information presented in this prospectus reflects strong period-over-period revenue and profitability growth rates that may not continue in the future. We have been operating during a

recent period of significant growth in prices and sales in the nitrogen fertilizer industry which may not continue or could reverse. As a result, our results of operations may be lower than in current periods or lower than we currently expect and the price of our common units may be volatile.

 

We will incur increased costs as a result of being a publicly traded partnership.

 

As a publicly traded partnership, we will incur significant legal, accounting and other expenses that we did not incur prior to this offering. In addition, the Sarbanes-Oxley Act of 2002, as well as rules implemented by the SEC and the New York Stock Exchange, require publicly traded entities to adopt various corporate governance practices that further increase our costs. Before we are able to make distributions to our unitholders, we must first pay or reserve cash for our expenses, including the costs of being a public company and other operating expenses, and our managing general partner may reserve cash for future distributions during periods of limited cash flows. As a result, the amount of cash we have available for distribution to our unitholders will be affected by our level of cash reserves and expenses, including the costs associated with being a publicly traded partnership.

 

Prior to this offering, we have not filed reports with the SEC. Following this offering, we will become subject to the public reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We expect these rules and regulations to increase certain of our legal and financial compliance costs and to make activities more time-consuming and costly. For example, as a result of becoming a publicly traded partnership, we are required to have at least three independent directors, create an audit committee and adopt policies regarding internal controls and disclosure controls and procedures, including the preparation of reports on internal controls over financial reporting. In addition, we will incur additional costs associated with our publicly traded company reporting requirements.

 

We also expect to incur significant expense in order to obtain director and officer liability insurance. Because of the limitations in coverage for directors, it may be more difficult for our managing general partner to attract and retain qualified persons to serve on its board of directors or as executive officers. We estimate that we will incur approximately $2.5 million of estimated incremental costs per year, some of which will be direct charges associated with being a publicly traded partnership, and some of which will be allocated to us by CVR Energy; however, it is possible that our actual incremental costs of being a publicly traded partnership will be higher than we currently estimate.

 

We will be exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act.

 

We are in the process of evaluating our internal controls systems to allow management to report on, and our independent auditors to audit, our internal controls over financial reporting. We will be performing the system and process evaluation and testing (and any necessary remediation) required to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, and will be required to comply with Section 404 in our annual report for the year ended December 31, 2009 (subject to any change in applicable SEC rules). Furthermore, upon completion of this process, we may identify control deficiencies of varying degrees of severity under applicable SEC and Public Company Accounting Oversight Board, or PCAOB, rules and regulations that remain unremediated. Although we produce our financial statements in accordance with GAAP, our internal accounting controls may not currently meet all standards applicable to companies with publicly traded securities. As a publicly traded partnership, we will be required to report, among other things, control deficiencies that constitute a “material weakness” or changes in internal controls that, or that are reasonably likely to, materially affect internal controls over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

If we fail to implement the requirements of Section 404 in a timely manner, we might be subject to sanctions or investigation by regulatory authorities such as the SEC or the PCAOB. If we do not implement improvements to our disclosure controls and procedures or to our internal controls in a timely manner, our independent registered public accounting firm may not be able to certify as to the effectiveness of our internal controls over financial reporting pursuant to an audit of our internal controls over financial reporting. This may subject us to adverse regulatory consequences or a loss of confidence in the reliability of our financial statements. We could also suffer a loss of confidence in the reliability of our financial statements if our independent registered public accounting firm reports a material weakness in our internal controls, if we do not develop and maintain effective controls and procedures or if we are otherwise unable to deliver timely and reliable financial information. Any loss of confidence in the reliability of our financial statements or other negative reaction to our failure to develop timely or adequate disclosure controls and procedures or internal controls could result in a decline in the price of our common units. In addition, if we fail to remedy any material weakness, our financial statements may be inaccurate, we may face restricted access to the capital markets and the price of our common units may be adversely affected.

 

Our relationship with CVR Energy and its financial condition subjects us to potential risks that are beyond our control.

 

Due to our relationship with CVR Energy, adverse developments or announcements concerning CVR Energy could materially adversely affect our financial condition, even if we have not suffered any similar development. The ratings assigned to CVR Energy’s senior secured indebtedness (B2 from Moody’s Investors Service, Inc. and B from Standard & Poor’s Ratings Group) are below investment grade. Downgrades of the credit ratings of CVR Energy could increase our cost of capital and collateral requirements, and could impede our access to the capital markets.

 

The credit and business risk profiles of CVR Energy may be factors considered in credit evaluations of us. This is because our special general partner jointly controls certain of our business activities, we rely on CVR Energy for various services, including management services and the supply of pet coke, and we sell hydrogen to CVR Energy on a regular basis for its refinery. Another factor that may be considered is the financial condition of CVR Energy, including the degree of its financial leverage and its dependence on cash flow from us to service its indebtedness. The credit and risk profile of CVR Energy could adversely affect our credit ratings and risk profile, which could increase our borrowing costs or hinder our ability to raise capital.

 

If we were to seek a credit rating in the future, our credit rating may be adversely affected by the leverage of our special general partner or CVR Energy, as credit rating agencies such as Standard & Poor’s Ratings Group and Moody’s Investors Service, Inc. may consider the leverage and credit profile of CVR Energy and its affiliates because of their ownership interest in and joint control of us and the strong operational links between CVR Energy’s refining business and us. Any adverse effect on our credit rating would increase our cost of borrowing or hinder our ability to raise financing in the capital markets, which would impair our ability to grow our business and make distributions to unitholders.

 

The Goldman Sachs Funds and the Kelso Funds, as well as our general partners and CVR Energy, may have conflicts of interest with the interests of our common unitholders.

 

Following the completion of this offering, the Goldman Sachs Funds and the Kelso Funds will own substantially all of the equity interests in Coffeyville Acquisition III, which owns our managing general partner and the IDRs, and will have four nominees on the board of directors of our managing general partner. In addition, the Goldman Sachs Funds and the Kelso Funds own approximately 73% of the common stock of CVR Energy, which controls our special general partner. Accordingly, the Goldman Sachs Funds and the Kelso Funds will substantially control our business, including the selection of the senior management team and determination of our business strategies, as well as potential mergers or acquisitions, assets sales and other significant corporate transactions. They may

elect to pursue strategies that are in their overall best interest but that are not in the interest of our non-affiliated unitholders.

 

The Goldman Sachs Funds and the Kelso Funds are in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. They may also, either directly or through affiliates, maintain business relationships with companies that may directly compete with us. In general, the Goldman Sachs Funds and the Kelso Funds or their affiliates could pursue business interests, or exercise their rights as controlling parties of our managing general partner or as stockholders of CVR Energy, in ways that are detrimental to us, but beneficial to themselves or to other companies in which they invest or with whom they have a material relationship.

 

Under the terms of our partnership agreement, the Goldman Sachs Funds and the Kelso Funds will have no obligation to offer us business opportunities. The Goldman Sachs Funds and the Kelso Funds may pursue acquisition opportunities for themselves that would be otherwise beneficial to our business and, as a result, these acquisition opportunities would not be available to us. Our partnership agreement provides that the owners of our managing general partner, which include the Goldman Sachs Funds and the Kelso Funds, are permitted to engage in separate businesses that directly compete with us and are not required to share or communicate or offer any potential business opportunities to us even if the opportunity is one that we might reasonably have pursued. The agreement provides that the owners of our managing general partner will not be liable to us or any unitholder for breach of any fiduciary or other duty by reason of the fact that such person pursued or acquired for itself any business opportunity.

 

Our general partners have fiduciary duties to favor the interests of their owners, and these interests may differ from, or conflict with, the interests of our common unitholders.

 

Our general partners are responsible for managing us. Although our general partners have fiduciary duties to manage us in a manner beneficial to us and holders of interests in us (including the common unitholders), the fiduciary duties are specifically limited by the express terms of our partnership agreement and the directors, officers and managers of our general partners and their owners also have fiduciary duties to manage our general partners in a manner beneficial to the owners of our general partners. The interests of the owners of our general partners may differ from, or conflict with, the interests of our common unitholders. In resolving these conflicts, our managing general partner may favor its own interests, the interests of its owners, the interests of our special general partner and/or the interests of CVR Energy over the interests of our common unitholders (and our interests).

 

The potential conflicts of interest include, among others, the following:

 

 

 

See “Conflicts of Interest and Fiduciary Duties”.

 

Our partnership agreement limits the fiduciary duties of our general partners and restricts the remedies available to us and our common unitholders for actions taken by our general partners that might otherwise constitute breaches of fiduciary duty.

 

Our partnership agreement limits the liability and reduces the fiduciary duties of our general partners, while also restricting the remedies available to our common unitholders, for actions that, without these limitations and reductions, might constitute breaches of fiduciary duty. Delaware partnership law permits such contractual reductions of fiduciary duty. By purchasing common units, common unitholders consent to some actions that might otherwise constitute a breach of fiduciary or other duties applicable under state law. Our partnership agreement contains provisions that reduce the standards to which our general partners would otherwise be held by state fiduciary duty law. For example:

 

 

By purchasing a common unit, a unitholder will become bound by the provisions of our partnership agreement, including the provisions described above. See “Description of Our Units — Transfer of Common Units”.

 

Your cash distributions from us may be limited over time due to our managing general partner’s incentive distribution rights.

 

After we have distributed all adjusted operating surplus generated by us during the period from the closing of this offering through December 31, 2009, if quarterly distributions exceed the target of $0.4313 per unit, then our managing general partner will be entitled to increasing percentages of the distributions, up to 48% of the distributions above the highest target level, in respect of its IDRs. Therefore, common unitholders will receive a smaller percentage of quarterly cash distributions from

us if we increase our quarterly distributions above the target distribution levels. Because our managing general partner does not share in adjusted operating surplus generated prior to December 31, 2009, our managing general partner could be incentivized to cause us to make capital expenditures for maintenance prior to such date, which would reduce operating surplus (as defined under “How We Make Cash Distributions — Operating Surplus and Capital Surplus”), rather than for expansion, which would not, and accordingly affect the amount of operating surplus generated. Our managing general partner could also be incentivized to cause us to make capital expenditures for maintenance prior to December 31, 2009 that it would otherwise make at a later date in order to reduce operating surplus generated prior to such date. In addition, our managing general partner’s discretion in determining the level of cash reserves may materially adversely affect our ability to make cash distributions to common unitholders.

 

We have agreed with CVR Energy that we will not own or operate oil refineries in the United States or abroad (with limited exceptions).

 

We have entered into an omnibus agreement with CVR Energy in order to clarify and structure the division of corporate opportunities between CVR Energy and us. Under this agreement, we have agreed not to engage in the ownership or operation within the United States of any refinery with processing capacity greater than 20,000 bpd whose primary business is producing transportation fuels or the ownership or operation outside the United States of any refinery (refinery restricted business). CVR Energy has agreed not to engage in the production, transportation or distribution, on a wholesale basis, of fertilizers in the contiguous United States, subject to limited exceptions (fertilizer restricted business).

 

With respect to any business opportunity other than those covered by a fertilizer restricted business or a refinery restricted business, we and CVR Energy have agreed that we will have a preferential right to pursue such opportunities before CVR Energy may pursue them. If our managing general partner elects not to cause us to pursue the business opportunity, then CVR Energy will be free to pursue such opportunity. This provision and the non competition provisions described in the previous paragraph will continue so long as CVR Energy and certain of its affiliates continue to own 50% or more of our outstanding units. See “Certain Relationships and Related Party Transactions — Agreements with CVR Energy — Omnibus Agreement”.

 

The owners of our managing general partner have the power to appoint and remove substantially all of our managing general partner’s directors and all of our management.

 

Coffeyville Acquisition III, which is owned by the Goldman Sachs Funds, the Kelso Funds and certain members of CVR Energy’s senior management team, has the ability to elect all but two of the members of the board of directors of our managing general partner. Our special general partner has the right to appoint the remaining two members of the board of directors, and the Goldman Sachs Funds and the Kelso Funds control 73% of the outstanding common stock of CVR Energy which controls our special general partner. Our managing general partner and, to the extent of its special management rights, our special general partner, have control over all decisions related to our operations. See “Management — Management of CVR Partners, LP”. Because our special general partner holds a majority of the units, our non-affiliated unitholders do not have an ability to influence any operating decisions and will not be able to prevent us from entering into any transactions. Furthermore, the goals and objectives of the owners of our managing general partner and CVR Energy relating to us may not be consistent with those of our non-affiliated unitholders.

 

Our managing general partner has call rights that may require you to sell your common units at an undesirable time or price.

 

If at any time our managing general partner and its affiliates own more than 80% of the common units, our managing general partner will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated

persons at a price equal to the greater of (x) the average of the daily closing prices of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (y) the highest price paid by our managing general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed.

 

As a result, you may be required to sell your common units at a price that is less than the initial offering price in this offering or, because of the manner in which the purchase price is determined, at a price less than the then current market price of the common units. In addition, these call rights may be exercised at an otherwise undesirable time or price and you may not receive any return on your investment. You may also incur a tax liability upon a sale of your common units. Our managing general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be purchased by it upon exercise of the call rights. There is no restriction in our partnership agreement that prevents our managing general partner from causing us to issue additional common units and then exercising its call rights. If our managing general partner exercised its call rights, the effect would be to take us private and, if the common units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Exchange Act.

 

The GP units indirectly owned by CVR Energy are a separate class from the common units. However, if our special general partner (together with its affiliates) ceases to own 20% or more of all outstanding units, the GP units will be deemed to be common units for purposes of the call rights provision. Moreover, our special general partner may convert the GP units it indirectly owns into an equal number of common units at any time. At the completion of this offering and assuming no exercise of the underwriters’ option to purchase additional common units, CVR Energy will be an affiliate of our managing general partner and will indirectly own GP units equal to approximately 47% of our outstanding common units and GP units (approximately 46% if the underwriters exercise their option to purchase additional common units in full). At the end of the subordination period, assuming no additional issuances of common units (other than, if applicable, for the conversion of the subordinated units into common units), CVR Energy will indirectly own approximately 87% of our aggregate outstanding common units and GP units (approximately 85% if the underwriters exercise their option to purchase additional common units in full). For additional information about the call rights, see “The Partnership Agreement — Limited Call Right”.

 

Non-affiliated unitholders have limited voting rights and are not entitled to elect our general partners or our managing general partner’s directors.

 

Unlike the holders of common stock in a corporation, non-affiliated unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. Unitholders will have no right to elect our general partners or our managing general partner’s board of directors on an annual or other continuing basis. The board of directors of our managing general partner, including the independent directors, will be chosen entirely by its owners and our special general partner and not by the common unitholders. Unlike publicly traded corporations, we will not hold annual meetings of our unitholders to elect directors or conduct other matters routinely conducted at such annual meetings of stockholders. Furthermore, even if our non-affiliated unitholders are dissatisfied with the performance of our general partners, they will have no practical ability to remove our general partners. As a result of these limitations, the price at which the common units will trade could be diminished.

 

Non-affiliated unitholders will not have sufficient voting power to remove our managing general partner without CVR Energy’s consent, which could lower the trading price of our common units.

 

Our unitholders will be unable to remove our managing general partner without CVR Energy’s consent because CVR Energy, through its indirect ownership of our special general partner, will own a sufficient number of units to be able to prevent removal of our managing general partner. Furthermore, prior to October 26, 2012, our managing general partner may be removed only for

“cause” (as defined in our partnership agreement) by a vote of the holders of at least 80% of all outstanding units voting together as a single class including any units held by our managing general partner and its affiliates. Following the closing of this offering, our special general partner will own approximately 87% of our units (approximately 85% if the underwriters exercise their option to purchase additional common units in full).

 

If our managing general partner is removed without cause and no units held by our special general partner and its affiliates are voted in favor of that removal, all subordinated units will automatically be converted into common units or GP units and any existing arrearages on the common units and GP units will be extinguished. A removal of our managing general partner under these circumstances could adversely affect the common units by prematurely eliminating their distribution and liquidation preference over the subordinated units, which would otherwise have continued until we had met certain distribution and performance tests.

 

Cause is narrowly defined in our partnership agreement to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding our managing general partner liable for actual fraud or willful misconduct in its capacity as our managing general partner. Cause does not include most cases of poor management of the business.

 

If our managing general partner is removed without cause, it will have the right to convert its managing general partner interest and its IDRs into units or to receive cash based on the fair market value of the interests at the time. If our managing general partner is removed for cause, a successor managing general partner will have the option to purchase the managing general partner interest of the departing managing general partner and its IDRs for a cash payment equal to the fair market value of the interests. Under all other circumstances, the departing managing general partner will have the option to require the successor managing general partner to purchase the managing general partner interest of the departing managing partner and its IDRs for their fair market value. See “The Partnership Agreement — Withdrawal or Removal of Our Managing General Partner”.

 

Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.

 

Our partnership agreement restricts unitholders’ voting rights by providing that any units held by a person that owns 20% or more of any class of units then outstanding (treating GP units and common units as a single class), other than our general partners, their affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of our managing general partner, may not vote on any matter. Our partnership agreement also contains provisions limiting the ability of common unitholders, GP unitholders and subordinated unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting common unitholders, GP unitholders and subordinated unitholders’ ability to influence the manner or direction of management.

 

Our managing general partner’s determination of the level of cash reserves may reduce the amount of cash available for distribution to you.

 

Our partnership agreement requires our managing general partner to deduct from available cash any cash reserves that it determines to be necessary or appropriate to fund our future operating expenditures. In addition, our partnership agreement also permits our managing general partner to reduce available cash by establishing cash reserves for the proper conduct of our business, to comply with applicable law or agreements to which we are a party, or to provide funds for future distributions to partners. Our managing general partner has a high level of discretion in establishing cash reserves. The establishment of new or an increase in existing reserves will reduce the amount of cash available for distribution to you.

Cost reimbursements due to our managing general partner and its affiliates will reduce cash available for distribution to you.

 

Prior to making any distribution on the units, we will reimburse our managing general partner for all expenses it incurs on our behalf, including without limitation our pro rata portion of management compensation and overhead charged by CVR Energy in accordance with our services agreement. The payment of these amounts, including allocated overhead, to our managing general partner and its affiliates could adversely affect our ability to make distributions to you. See “Our Cash Distribution Policy and Restrictions on Distributions”, “Certain Relationships and Related Party Transactions” and “Conflicts of Interest and Fiduciary Duties — Conflicts of Interest”.

 

Limited partners may not have limited liability if a court finds that unitholder action constitutes control of our business.

 

A general partner of a partnership generally has unlimited liability for the obligations of the partnership, except for those contractual obligations of the partnership that are expressly made without recourse to the general partner. Our partnership is organized under Delaware law and we conduct business in a number of other states, including Kansas, Nebraska and Texas. The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some of the states in which we do business. Limited partners could be liable for our obligations as if such limited partners were general partners if a court or government agency determined that:

 

 

See “The Partnership Agreement — Limited Liability” for a discussion of the implications of the limitations of liability on a limited partner.

 

Unitholders may have liability to repay distributions.

 

Under certain circumstances, limited partner unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 17-607 of the Delaware Act, we may not make a distribution to limited partners if the distribution would cause our liabilities to exceed the fair value of our assets. Liabilities to partners on account of their partnership interests and liabilities that are nonrecourse to the partnership are not counted for purposes of determining whether a distribution is permitted. Delaware law provides that for a period of three years from the date of an impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. A purchaser of common units who becomes a limited partner is liable for the obligations of the transferring limited partner to make contributions to the partnership that are known to such purchaser of common units at the time it became a limited partner and for unknown obligations if the liabilities could be determined from our partnership agreement.

 

Our managing general partner’s interest in us and the control of our managing general partner may be transferred to a third party without unitholder consent.

 

Our managing general partner may transfer its managing general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of the unitholders or our special general partner. Furthermore, there is no restriction in our partnership agreement on the ability of the current owners of our managing general partner to transfer their equity interest in our managing general partner to a third party. The new equity owner of our managing general partner would then be in a position to replace the board of directors (other than the two directors appointed by

our special general partner) and the officers of our managing general partner (subject to our special general partner’s rights to approve the selection of the chief executive officer and chief financial officer) with its own choices and to influence the decisions taken by the board of directors and officers of our managing general partner.

 

If control of our managing general partner is transferred to an unrelated third party, the new owner of the managing general partner may have no interest in us other than its IDRs, and no interest in CVR Energy. Following this offering, the Goldman Sachs Funds and the Kelso Funds both control our managing general partner and collectively own more than 73% of CVR Energy. We rely substantially on the senior management team of CVR Energy and have entered into a number of significant agreements with CVR Energy, including a long-term agreement for the provision of pet coke. If our managing general partner and CVR Energy are no longer controlled by the same parties, CVR Energy could be more likely to terminate its agreements with us, including the services agreement in which CVR Energy provides us with the services of its senior management team.

 

Increases in interest rates could adversely impact our unit price and our ability to issue additional equity to make acquisitions, incur debt or for other purposes.

 

We cannot predict how interest rates will react to changing market conditions. Interest rates on future credit facilities and debt offerings could be higher than current levels, causing our financing costs to increase accordingly. Additionally, as with other yield-oriented securities, our unit price is impacted by the level of our cash distributions and implied distribution yield. The distribution yield is often used by investors to compare and rank related yield-oriented securities for investment decision-making purposes. Therefore, changes in interest rates may affect the yield requirements of investors who invest in our common units, and a rising interest rate environment could have a material adverse impact on our unit price and our ability to issue additional equity to make acquisitions or to incur debt as well as increasing our interest costs.

 

There is no existing market for our common units, and we do not know if one will develop to provide you with adequate liquidity. If our unit price fluctuates after this offering, you could lose a significant part of your investment.

 

Prior to this offering, there has not been a public market for our common units. If an active trading market does not develop, you may have difficulty selling any of our common units that you buy. The initial public offering price for the common units will be determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell our common units at prices equal to or greater than the price paid by you in this offering. The market price of our common units may be influenced by many factors including:

 

 

 

As a result of these factors, investors in our common units may not be able to resell their common units at or above the initial offering price. In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies like us. These broad market and industry factors may materially reduce the market price of our common units, regardless of our operating performance.

 

You will incur immediate and substantial dilution in net tangible book value per common unit.

 

The assumed initial public offering price of our common units is substantially higher than the pro forma net tangible book value of our outstanding units. As a result, if you purchase common units in this offering, you will incur immediate and substantial dilution in the amount of $9.63 per common unit. This dilution results primarily because the assets contributed by our special general partner and its affiliates are recorded at their historical costs, and not their fair value, in accordance with GAAP. See “Dilution”.

 

We may issue additional common units and other equity interests without your approval, which would dilute your existing ownership interests.

 

Under our partnership agreement, we are authorized to issue an unlimited number of additional interests without a vote of the unitholders. The issuance by us of additional common units or other equity interests of equal or senior rank will have the following effects:

 

 

In addition, our partnership agreement does not prohibit the issuance by our subsidiaries of equity interests, which may effectively rank senior to the common units.

 

Units eligible for future sale may cause the price of our common units to decline.

 

Sales of substantial amounts of our units in the public market, or the perception that these sales may occur, could cause the market price of our common units to decline. This could also impair our ability to raise additional capital through the sale of our equity interests.

 

5,250,000 common units will be outstanding following this offering. In addition, our special general partner will own 18,750,000 GP units (which are convertible into 18,750,000 common units) and 16,000,000 subordinated GP units. The subordinated GP units convert into GP units at the end of the subordination period (and will thereafter be convertible into common units), which could occur as early as          , 2013, and some of the subordinated GP units may convert into GP units beginning on          , 2011 if additional tests are satisfied. The 5,250,000 common units sold in this offering will be freely transferable without restriction or further registration under the Securities Act of 1933, or the Securities Act, by persons other than “affiliates”, as that term is defined in Rule 144 under the Securities Act.

In addition, under our partnership agreement, our general partners and their affiliates have the right to cause us to register their units under the Securities Act and applicable state securities laws. We have also entered into a registration rights agreement with our special general partner under which our special general partner has the right to cause us to register under the Securities Act and applicable state securities laws the offer and sale of any units it holds on three occasions, subject to certain limitations.

 

In connection with this offering, our general partners and our managing general partner’s directors and executive officers will enter into lock-up agreements, pursuant to which they are expected to agree, subject to certain exceptions, not to sell or transfer, directly or indirectly, any of our common units for a period of 180 days from the date of this prospectus, subject to extension in certain circumstances. Following termination of these lockup agreements, all units held by our general partners will be freely tradable under Rule 144, subject to the volume limitations of Rule 144. See “Units Eligible for Future Sale”.

 

In addition to reading the following risk factors, you should read “Material Tax Consequences” for a more complete discussion of the expected material federal income tax consequences of owning and disposing of common units.

 

Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the IRS were to treat us as a corporation for federal income tax purposes or if we were to become subject to additional amounts of entity-level taxation for state tax purposes, then our cash available for distribution to you would be substantially reduced.

 

The anticipated after-tax economic benefit of an investment in the common units depends largely on our being treated as a partnership for federal income tax purposes. Despite the fact that we are a limited partnership under Delaware law, it is possible in certain circumstances for a partnership such as ours to be treated as a corporation for federal income tax purposes. During 2008, and in each taxable year thereafter, current law requires us to derive at least 90% of our annual gross income from specific activities to continue to be treated as a partnership for federal income tax purposes. We may not find it possible to meet this income requirement, or may inadvertently fail to meet this income requirement.

 

Although we do not believe based upon our current operations that we should be so treated, a change in our business or a change in current law could cause us to be treated as a corporation for federal income tax purposes or otherwise subject us to taxation as an entity. We are considering, and may consider in the future, expanding or entering into new activities or businesses. If our legal counsel is unable to opine that gross income from any of these activities or businesses will count toward satisfaction of the 90% income, or qualifying income, requirement to be treated as a partnership, we may seek a ruling from the IRS that gross income we earn from those activities will be qualifying income. There can be no assurance that the IRS would issue a favorable ruling. If we do not receive a favorable ruling we may choose to engage in the activity through a corporate subsidiary, which would subject the income related to such activity to entity-level taxation. We have not requested, and do not plan to request, a ruling from the IRS on any other matter affecting us.

 

If we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our taxable income at the corporate tax rate, which is currently a maximum of 35%, and would likely pay state income tax at varying rates. Distributions to unitholders would generally be taxed again as corporate distributions, and no income, gains, losses or deductions would flow through to you. Thus, treatment of us as a corporation would result in a material reduction in the cash

available for distribution by us and after-tax return to unitholders, likely causing a substantial reduction in the value of the common units.

 

In addition, current law could change so as to cause us to be treated as a corporation for federal income tax purposes or otherwise subject us to entity-level taxation. For example, at the federal level, legislation has been proposed that would eliminate partnership tax treatment for certain publicly traded partnerships. Although such legislation would not apply to us as currently proposed, it could be amended prior to enactment in a manner that does apply to us. At the state level, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise or other forms of taxation. Specifically, beginning in 2008, we are required to pay Texas franchise tax at a maximum effective rate of 0.7% of our gross income apportioned to Texas in the prior year. Imposition of this tax by Texas and, if applicable, by any other state will reduce our cash available for distribution to you. We are unable to predict whether any of these changes or other proposals will ultimately be enacted. Any such changes could negatively impact the value of an investment in our common units. Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for federal, state or local income tax purposes, then our managing general partner may, in its sole discretion, cause the minimum quarterly distribution amount and the target distribution amounts to be adjusted to reflect the impact of that law on us.

 

The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.

 

The present federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial interpretation at any time. For example, members of Congress are considering substantive changes to the existing federal income tax laws that affect certain publicly traded partnerships. Any modification to the federal income tax laws and interpretations thereof may or may not be applied retroactively. Any such changes could negatively impact the value of an investment in our common units.

 

If the IRS contests the federal income tax positions we take, the market for our common units may be materially adversely impacted, and the cost of any IRS contest will reduce our cash available for distribution to you.

 

Except as described above under “— Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the IRS were to treat us as a corporation for federal income tax purposes or if we were to become subject to additional amounts of entity-level taxation for state tax purposes, then our cash available for distribution to you would be substantially reduced”, we have not and do not intend to request a ruling from the IRS with respect to our treatment as a partnership for federal income tax purposes. The IRS may adopt positions that differ from our counsel’s conclusions expressed in this prospectus or from the positions we take. It may be necessary to resort to administrative or court proceedings to sustain some or all of our counsel’s conclusions or the positions we take. A court may not agree with some or all of our counsel’s conclusions or the positions we take. Any contest with the IRS may materially adversely impact the market for our common units and the price at which they trade. In addition, because the costs of any contest with the IRS will be borne indirectly by our unitholders and our managing general partner, any such contest will result in a reduction in cash available for distribution.

 

You will be required to pay taxes on your share of our income even if you do not receive any cash distributions from us.

 

Because our unitholders will be treated as partners to whom we will allocate taxable income which could be different in amount than the cash we distribute, you will be required to pay federal

income taxes and, in some cases, state and local income taxes on your share of our taxable income, even if you receive no cash distributions from us. You may not receive cash distributions from us equal to your share of our taxable income or even equal to the actual tax liability that results from that income.

 

Tax gain or loss on the disposition of our common units could be more or less than expected.

 

If you sell your common units, you will recognize a gain or loss equal to the difference between the amount realized and your tax basis in those common units. Because distributions in excess of your allocable share of our net taxable income decrease your tax basis in your common units, the amount, if any, of such prior excess distributions with respect to the common units you sell will, in effect, become taxable income to you if you sell such common units at a price greater than your tax basis in those common units, even if the price you receive is less than your original cost. Furthermore, a substantial portion of the amount realized, whether or not representing gain, may be taxed as ordinary income due to potential recapture items, including depreciation recapture. In addition, because the amount realized includes a unitholder’s share of our nonrecourse liabilities, if you sell your common units, you may incur a tax liability in excess of the amount of cash you receive from the sale. See “Material Tax Consequences — Disposition of Common Units — Recognition of Gain or Loss” for a further discussion of the foregoing.

 

 

Tax-exempt entities and non-U.S. persons face unique tax issues from owning our common units that may result in adverse tax consequences to them.

 

Investment in common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (known as IRAs), and non-U.S. persons, raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes at the highest applicable effective tax rate, and non-U.S. persons will be required to file United States federal tax returns and pay tax on their share of our taxable income. If you are a tax-exempt entity or a non-U.S. person, you should consult your tax advisor before investing in our common units.

 

We will treat each purchaser of common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could result in a decrease in the value of the common units.

 

Because we cannot match transferors and transferees of common units and because of other reasons, we will adopt depreciation and amortization positions that may not conform to all aspects of existing Treasury regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to you. It also could affect the timing of these tax benefits or the amount of gain from your sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to your tax returns. See “Material Tax Consequences — Tax Consequences of Unit Ownership — Section 754 Election” for a further discussion of the effect of the depreciation and amortization positions we have adopted.

 

We prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.

 

We prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The use of this proration method may not be

permitted under existing Treasury regulations and, accordingly, our counsel is unable to opine as to the validity of this method. If the IRS were to challenge this method or new Treasury regulations were issued, we may be required to change the allocation of items of income, gain, loss and deduction among our unitholders. See “Material Tax Consequences — Disposition of Common Units — Allocations Between Transferors and Transferees”.

 

A unitholder whose common units are loaned to a “short seller” to cover a short sale of common units may be considered as having disposed of those common units. If so, the unitholder would no longer be treated for tax purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from the disposition.

 

Because a unitholder whose units are loaned to a “short seller” to cover a short sale of common units may be considered as having disposed of the loaned common units, he may no longer be treated for tax purposes as a partner with respect to those common units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan to the short seller, any of our income, gain, loss or deduction with respect to those common units may not be reportable by the unitholder and any cash distributions received by the common unitholder as to those units could be fully taxable as ordinary income. Vinson & Elkins L.L.P. has not rendered an opinion regarding the treatment of a unitholder where common units are loaned to a short seller to cover a short sale of common units; therefore, unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller are urged to modify any applicable brokerage account agreements to prohibit their brokers from borrowing their common units.

 

 

We will adopt certain valuation methodologies that may result in a shift of income, gain, loss and deduction between the general partner and the unitholders. The IRS may challenge this treatment, which could adversely affect the value of the common units.

 

When we issue additional units or engage in certain other transactions, we will determine the fair market value of our assets and allocate any unrealized gain or loss attributable to our assets to the capital accounts of our unitholders and our general partners. Our methodology may be viewed as understating the value of our assets. In that case, there may be a shift of income, gain, loss and deduction between certain unitholders and the general partner, which may be unfavorable to such unitholders. Moreover, under our valuation methods, subsequent purchasers of common units may have a greater portion of their Internal Revenue Code Section 743(b) adjustment allocated to our tangible assets and a lesser portion allocated to our intangible assets. The IRS may challenge our valuation methods, or our allocation of the Section 743(b) adjustment attributable to our tangible and intangible assets, and allocations of income, gain, loss and deduction between the general partner and certain of our unitholders.

 

 

A successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income or loss allocated to our unitholders. It also could affect the amount of gain from our unitholders’ sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders’ tax returns without the benefit of additional deductions.

 

The sale or exchange of 50% or more of our capital and profits interests during any twelve-month period will result in the termination of our partnership for federal income tax purposes.

 

We will be considered to have terminated for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. Our termination would, among other things, result in the closing of our taxable year for all unitholders,

which would result in our filing two tax returns (and our unitholders could receive two Schedules K-1) for one fiscal year and could result in a deferral of depreciation deductions allowable in computing our taxable income. In the case of a unitholder reporting on a taxable year other than a fiscal year ending December 31, the closing of our taxable year may also result in more than twelve months of our taxable income or loss being includable in his taxable income for the year of termination. Our termination currently would not affect our classification as a partnership for federal income tax purposes, but instead, we would be treated as a new partnership for tax purposes. If treated as a new partnership, we must make new tax elections and could be subject to penalties if we are unable to determine that a termination occurred. See “Material Tax Consequences — Disposition of Common Units — Constructive Termination” for a discussion of the consequences of our termination for federal income tax purposes.

 

As a result of investing in our common units, you may be subject to state and local taxes and return filing requirements in jurisdictions where we operate, own or acquire property.

 

In addition to federal income taxes, you will likely be subject to other taxes, including foreign, state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct business or own property now or in the future, even if you do not live in any of those jurisdictions. You will likely be required to file foreign, state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, you may be subject to penalties for failure to comply with those requirements. We will initially own assets and conduct business in Kansas, Nebraska and Texas. Kansas and Nebraska currently impose a personal income tax on individuals. Kansas and Nebraska also impose an income tax on corporations and other entities. Texas currently imposes a franchise tax on corporations and other entities. As we make acquisitions or expand our business, we may own assets or conduct business in additional states that impose a personal income tax. It is your responsibility to file all United States federal, foreign, state and local tax returns. Our counsel has not rendered an opinion on the state or local tax consequences of an investment in our common units.

 

 

This prospectus contains forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include the words “will”, “believe”, “expect”, “anticipate”, “intend”, “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. Our forward-looking statements include statements about our business strategy, our industry, our future profitability, our expected capital expenditures (including environmental expenditures) and the impact of such expenditures on our performance, the costs of operating as a public company and our capital programs. These statements involve known and unknown risks, uncertainties and other factors, including the factors described under “Risk Factors”, that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. Such risks and uncertainties include, among other things:

 

 

 

You should not place undue reliance on our forward-looking statements. Although forward-looking statements reflect our good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise.

 

We expect to receive approximately $93.4 million of net proceeds from the sale of common units by us in this offering, after deducting underwriting discounts and commissions and the estimated expenses of this offering, based on an assumed initial public offering price of $20.00 per common unit. We intend to use the net proceeds of this offering as follows:

 

 

If the underwriters exercise their option to purchase 787,500 additional common units from us in full, the additional net proceeds to us would be approximately $14.6 million (and the total net proceeds to us would be approximately $108.0 million), in each case assuming an initial public offering price per common unit of $20.00. We intend to retain such additional net proceeds from any exercise of the underwriters’ option to fund working capital and future capital expenditures of our business.

 

A $1.00 increase (or decrease) in the assumed initial public offering price of $20.00 per common unit would increase (decrease) the net proceeds to us from the offering by $4.9 million, assuming the number of common units offered by us, as set forth on the cover page of this prospectus, remains the same and assuming the underwriters do not exercise their option to purchase additional common units, and after deducting the underwriting discounts and commissions. The actual initial public offering price is subject to market conditions and negotiations between us and the underwriters.

 

Depending on market conditions at the time of pricing of this offering and other considerations, we may sell fewer or more common units than the number set forth on the cover page of this prospectus.

 

The following table sets forth our consolidated cash and cash equivalents and capitalization as of December 31, 2007 on (a) an actual basis and (b) a pro forma basis to reflect the Transactions.

 

You should read this table in conjunction with “Use of Proceeds”, “Selected Historical Consolidated Financial Information”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Consolidated Financial Statements”, and the consolidated financial statements and related notes included elsewhere in this prospectus.

 

 

 

Purchasers of common units offered by this prospectus will suffer immediate and substantial dilution in net tangible book value per unit. Our pro forma net tangible book value as of December 31, 2007, excluding the net proceeds of this offering, was approximately $321.6 million, or approximately $9.25 per unit. Pro forma net tangible book value per unit represents the amount of tangible assets less total liabilities (excluding the net proceeds of this offering), divided by the pro forma number of units outstanding (excluding the units issued in this offering).

 

Dilution in net tangible book value per unit represents the difference between the amount per unit paid by purchasers of our common units in this offering and the pro forma net tangible book value per unit immediately after this offering. After giving effect to the sale of 5,250,000 common units in this offering at an assumed initial public offering price of $20.00 per common unit, and after deduction of the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of December 31, 2007 would have been approximately $415.0 million, or $10.37 per unit. This represents an immediate increase in net tangible book value of $1.12 per unit to our existing unitholders and an immediate pro forma dilution of $9.63 per unit to purchasers of common units in this offering. The following table illustrates this dilution on a per unit basis:

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $20.00 per common unit would increase (decrease) our pro forma net tangible book value by $4.9 million, the pro forma net tangible book value per unit by $0.12 and the dilution per common unit to new investors by $0.12, assuming the number of common units offered by us, as set forth on the cover page of this prospectus, remains the same and the underwriters do not exercise their option to purchase additional common units, and after deducting the underwriting discounts and estimated offering expenses payable by us. Depending on market conditions at the time of pricing of this offering and other considerations, we may sell fewer or more common units than the number set forth on the cover page of this prospectus.

The following table sets forth the total value contributed by our special general partner and its affiliates in respect of the units held by them and the total amount of consideration contributed to us by the purchasers of common units in this offering upon the completion of the Transactions.

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $20.00 per common unit would increase (decrease) total consideration paid by new investors and total consideration paid by all unitholders by $4.9 million, assuming the number of common units offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and estimated offering expenses payable by us.

 

If the underwriters exercise their option to purchase 787,500 common units from us in full, then the pro forma increase per unit attributable to new investors would be $1.28, the net tangible book value per unit after this offering would be $10.53 and the dilution per unit to new investors would be $9.47. In addition, new investors would purchase 6,037,500 common units, or approximately 14.8% of units outstanding, and the total consideration contributed to us by new investors would increase to $108.0 million, or 24% of the total consideration contributed (based on an assumed initial public offering price of $20.00 per common unit).

 

You should read the following discussion of our cash distribution policy and restrictions on distributions in conjunction with the specific assumptions upon which our cash distribution policy is based. See “— Assumptions and Considerations” below. For additional information regarding our historical and pro forma operating results, you should refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our audited historical consolidated financial statements and our unaudited pro forma consolidated financial statements included elsewhere in this prospectus. In addition, you should read “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” for information regarding statements that do not relate strictly to historical or current facts and certain risks inherent in our business.