KiOR: company warns of bankruptcy potential; strikes forbearance deal with Mississippi

August 13, 2014 |

KiOR, the struggling cellulosic biofuels producer, issued these statements as part of its most recent SEC 10-Q filing:

During the first quarter of 2013, the Company commissioned the Columbus facility’s hydrotreater and fractionation units, and made the Company’s first cellulosic diesel and gasoline shipments in March 2013 and June 2013, respectively. During 2013, the Company intermittently operated its Columbus facility but did not reach “steady state” production.

Yield and throughput problems

The Company has encountered several significant difficulties to date at its Columbus facility because of structural bottlenecks, reliability, mechanical issues, costs and catalyst performance.

In January 2014, the Company elected to suspend operations at its Columbus facility in order to attempt to complete a series of optimization projects and upgrades that were targeted at improving throughput, yield and overall process efficiency and reliability. In terms of throughput, the Company experienced issues with structural design bottlenecks and reliability that have limited the amount of wood that it can introduce to its BFCC system.

These issues have caused the Columbus facility to run significantly below its nameplate capacity for biomass of 500 bone dry tons per day and limited the Company’s ability to produce cellulosic gasoline and diesel. The Company has identified changes to the BFCC, hydrotreater and wood yard that it believes would improve the throughput performance of the Columbus facility.

In terms of yield, the Company has identified additional enhancements that it believes would improve the overall yield of transportation fuels from each ton of biomass from the Columbus facility, which has been lower than expected due to a delay in introducing its new generation of catalyst to the facility and mechanical failures impeding desired chemical reactions in the BFCC reactor.

The Company has elected to suspend optimization work and bring the Columbus facility to a safe, idle state, which the Company believes will enable it to restart the facility upon the achievement of additional research and development milestones and if it is able to raise additional working capital.

Sale of the company

In July 2014, the Company announced that, under the guidance of its board of directors, it has engaged Guggenheim Securities to assist the Company in reviewing and evaluating various financing, transactional and strategic alternatives, including a possible merger, restructuring or sale of the Company.

Bankruptcy looms?

Without additional financing the Company will be unable to fund its operations and meets its obligations past approximately September 30, 2014.

In July 2014 the Company entered into a Protective Advance Loan and Security Agreement with KFT Trust, Vinod Khosla, Trustee and Khosla in its capacity as agent for the Lenders.

If the Company successfully receives all of the available Protective Advances, it expects to be able to fund its operations and meet its obligations until approximately September 30, 2014, but will need to raise additional funds to continue its operations beyond that date. If the Company is not successful in receiving all of the available Protective Advances or if it is otherwise unable to raise additional funds beyond approximately September 30, 2014, the Company will not have adequate liquidity to fund its operations and meet its obligations (including its debt payment obligations), in which case it will likely be forced to voluntarily seek protection under the U.S. Bankruptcy Code (or an involuntary petition for bankruptcy may be filed against the Company).

As of June 30, 2014, the Company had cash and cash equivalents of $0.5 million. As of July 31, 2014 the Company had cash and cash equivalents of $0.8 million.

The Mississippi problem

The Company was unable to make its semi-annual payment of $1,875,000 required by the MDA loan documents and was in default of certain non-payment obligations under the MDA loan (collectively, the “Existing/Anticipated Defaults”). On July 3, 2014, the Company and the MDA entered into a Forbearance Agreement, pursuant to which the MDA agreed to forbear from exercising its rights and remedies with respect to the Company’s Existing/Anticipated Defaults while the Company explores Strategic Transactions. The forbearance period commences on July 3, 2014 and ends on the earliest to occur of (i) October 31, 2014 or (ii) the date of a Forbearance Default.

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