Ineos BIO lands $75M USDA loan guarantee for advanced biofuels project

January 6, 2011 |

In Florida, INEOS Bio and its joint venture partner, New Planet Energy, announced a conditional commitment for a $75 million loan guarantee from the U.S. Department of Agriculture’s (USDA) 9003 Biorefinery Assistance Program.

One unique aspect of the transaction is its reliance not on traditional bank finance, but on an innovative bond program developed by Mark Riedy of Mintz Levin, John May of Stern Brothers and John Kirkwood of Kreig DeVault. The INEOS loan guarantee is the first given covering a project that will utilize the bond finance route, which is expected to open up a new and important channel of finance for the drive to commercial-scale biofuels.

More about that program in: The Name is Bond: New concepts in bond financing may break biofuels finance logjam

The timing of the Ineos BIO announcement

The announcement by Ineos BIO, although expected as part of a wave of USDA loan guarantees that have been expected for a week now, caught some observers and the USDA off guard, as the initial announcement was expected to cover a trio or possibly a quartet of projects. The conditional commitment is subject to the closing process and period, but is expected to be completed rapidly and by all accounts before the US Congress completes work on its annual budget.

The delay at USDA is said to be the result of some difficulties in scoring the loan guarantee program over at OMB – the higher the risk, the higher the reserves that USDA’s loan guarantee must sequester, the lower the total number and amount of guarantees that can be issued.

The USDA loan guarantee program and the Congressional deficit-reducing drive

At risk in that budget process is the entire funding for the Section 9003 loan guarantee program – in the omnibus spending bill proposed in December by the outgoing Congress, zeroing out 9003 is exactly what happened.

All of which gives some color as to why the USDA has moved the loan guarantee process from initial opening up of the Section 9003 loan guarantee program to the issuance of the INEOS Bio conditional guarantee in five months. Their goal? Demonstrating to Congress that the USDA loan guarantee program is a functioning, job-creating reality, that it is working as it was intended by Congress, and that budget cuts should spare a program which is meeting the goals of the American public – which is “jobs, jobs, jobs.”

As a source told the Digest, “the new Congress knows – or should know – that if they don’t deliver jobs and growth, in two years they are gone too. The only way out of this deficit is to get those Bush tax cuts back in place, which they have rightly done, and now to add more jobs and increase the tax base. And the only Horatio Algers that are coming into the economy right now, with the potential to drive it dramatically forward in new ways, are in renewable energy. Period.”

The directive over at USDA, therefore, is to move as many guarantees through the process as possible, and thereby make the case to Congress that a working, job creating program that leverages the the spending by as much as 10 to 1 ($2 billion in loan guarantee reserve funds can secure as much as $20 billion in loans) should be spared the budget axe.

In addition to the loan guarantees expected this week, USDA also issued guarantees last year to Range Fuels and Sapphire Energy.

The USDA vs. DOE loan guarantee programs

Meanwhile, DOE is still unable to get a loan guarantee out under its program – which has been in place for five years, not five months, with zero results for bioenergy to date. The best so far has been a series of term sheets, the most recent issued to Fulcrum Bioenergy, which could turn into conditional commitments, which could then turn into closed loan guarantees…someday.

Out understanding is that there are up to 8 projects which, to date, have been issued term sheets by the DOE for loan guarantees, and that POET’s loan guarantee application is currently over at OMB for review.

One key difference between the DOE and USDA loan guarantee programs – the role of the Secretary in driving results. By all accounts, Agriculture Secretary Vilsack has been driving his troops personally and hard to move the loan guarantees through the process, and convert the Administration’s rhetoric on energy security, emissions reduction and cleantech economic development into reality.

More about Ineos BIO

Funds will be used for the construction of the world’s first INEOS BioEnergy Center located near Vero Beach, Florida, and all funds for the project are now in place – including a DOE Integrated Bioenergy grant, the loan guarantee, and the equity contribution from INEOS.

Site preparation is underway at the BioEnergy Center, and groundbreaking is expected as soon as the first half of February. The project,  which will provide 175 jobs during construction and 50 full-time jobs after the site is completed, is expected to be commissioned by the end of Q1 or early in the second quarter of 2012.

The BioEnergy Center will produce eight million gallons (24,000 tons) of advanced biofuel per year and six megawatts (gross) of renewable electricity from biomass including yard, vegetative and wood wastes and municipal solid waste.

More about future loan guarantee awardees

Project developers, USDA and DOE are tight-lipped about who is where with the USDA and DOE in the loan guarantee process. As a general rule, consider that the primary candidates for guarantees are the same projects which received DOE integrated bioenergy grants.

Among these that have not publicly spoken about their loan guarantee applications or where they are in the process, are: demonstration-scale projects at BlueFire Renewables, BioEnergy International, and Enerkem; pilot-scale projects at Algenol, American Process, Amyris, Archer Daniels Midland, ClearFuels Technology. Elevance, GTI, Haldor Topsoe, ICM, Logos Technologies, REII, Solazyme, Honeywell’s UOP and Zeachem.

More on the integrated biorefinery grants, here.

More on the INEOS Bio announcement, here.

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Category: Fuels

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