PBF Energy just had a decent first quarter, navigating volatile markets and completing major turnarounds at several refineries. But beneath the surface, a subtle shift in language hints at a challenge that's not making headlines: PBF Energy's dependence on the whims of credit rating agencies.

While celebrating their "strongest financial position ever," with debt reduction, share buybacks, and a "balance sheet transformation complete," PBF's executives repeatedly stressed their commitment to achieving an investment-grade credit rating. This emphasis might seem like standard corporate posturing, but it reveals a deeper concern.

PBF believes an investment-grade rating is their ticket to a wider investor base, one that's restricted by mandates requiring investment-grade holdings. This dependence on the rating agencies is a silent risk, a ghost in the machine of PBF's financial strategy.

Consider the following: Despite boasting "investment-grade level credit metrics," PBF hasn't yet received the coveted upgrade. They acknowledge the rating agencies are "going to be slower," a polite way of saying their criteria might not align with PBF's reality.

This disconnect creates a vulnerability. What if the rating agencies remain unconvinced, despite PBF's efforts? Their vision of attracting a broader investor base could be stalled, limiting their access to capital and potentially impacting growth.

There's a tangible cost to this reliance. Karen Davis, PBF's CFO, points out the desired rating would lead to "reducing our weighted average cost of capital and certain other expenses." Until then, PBF is paying a premium, a silent tax on their ambitious plans.

"This focus on external validation stands in stark contrast to their defiant stance on other issues. Take, for example, the recent California proposal to mandate gasoline stockpiling. PBF dismisses the idea as "not particularly thought through," asserting that "no regulatory agency can dictate... how much inventory it holds.""

This defiant independence highlights the irony of their deference to credit rating agencies. PBF is willing to fight against government intervention, yet seems content to dance to the tune of unelected evaluators.

The numbers themselves tell a story. PBF repurchased $125 million in shares during the first quarter, adding to the $814 million already spent since December 2022. That's over 14% of their outstanding shares, significantly reducing their share count. While admirable, this strategy is dependent on continued strong cash flow and could be constrained if their access to capital remains limited by their credit rating.

Share Buybacks vs. Cash on Hand

The chart below illustrates PBF Energy's aggressive share buyback program alongside their cash on hand.

Here's where the hypothesis emerges: PBF's future hinges on a gamble. They're betting that appeasing the rating agencies will unlock access to a larger pool of capital, justifying their share buyback program and fueling future growth.

But what if the gamble fails? What if the rating agencies remain stubbornly unimpressed? PBF could find themselves in a bind, their growth hampered and their share buyback strategy unsustainable.

It's a silent threat, one that's lurking beneath the positive headlines. The ghost in the machine of PBF's future isn't tighter crude spreads or Californian regulations, it's the unpredictable and potentially costly dependence on the approval of credit rating agencies.

"Fun Fact: PBF Energy's refineries process enough crude oil every day to fill over 7.5 Olympic-sized swimming pools!"