Myriant’s debt deal: A light at the end of a long, bio-based tunnel

June 18, 2012 |

Myriant closes first bio-based chemicals loan under USDA’s Business and Industry Loan Guarantee Program.

Industry’s first private bond placement under innovative structure developed to finance advanced industrial scale-up; Q1 2013 commercial start-up in sight

In Massachusetts, Myriant announced it closed a $25 million private bond placement for the construction of its flagship commercial bio-succinic acid plant located in Lake Providence, Louisiana.

Myriant is the first bio-based chemicals company to receive funding from USDA’s B&I Rural Development Loan Guarantee program. The B&I program is designed to improve the economic and environmental climate in rural communities by supporting the development of high quality local industry.

Background on Myriant

Myriant’s Lake Providence, LA commercial plant will produce 30 million pounds of bio-succinic acid annually and construction is on-schedule for the planned commercial start-up in the first quarter of 2013.  The project is expected to create approximately 40-50 direct and highly-skilled jobs, approximately 250 construction jobs and an estimated 300 indirect jobs. The company has signed multi-year, customer contracts for the plant’s expected annual production capacity and is currently planning its 140 million pound expansion in the United States.

Succinic acid is traditionally produced from petroleum and is used in a wide variety of applications, including the production of polymers, fibers, surfactants, detergents and flavors. The global market for succinic acid is currently estimated at approximately $7.5 billion annually.

Myriant’s proprietary technology platform reduces the environmental impact from petroleum-based chemical manufacturing by making chemicals, such as bio-succinic acid, from renewable, non-food feedstocks. Myriant’s high purity bio-succinic acid is a drop-in replacement for petroleum-based succinic acid. Customer analysis of Myriant’s bio-succinic acid validates that it is chemically identical to petroleum-based succinic acid, while also being more environmentally friendly and cost-competitive without government subsidies.

Why it’s a big deal.

$25 million, so what?

Well, pilgrim, there are several aspects of this deal that industry will be following, and studying, with great interest.

First of all, the structure.  When the grand scale-up of industrial technology was first mooted, everyone knew that there was going to have to be a lot of project debt, and all eyes, in those pre-2008 days, were on the banking sector. With 2008-09, the banks generally exited this sector – a combination of the deal size, compared to the bank size that traditionally played in agricultural markets; bank liquidity; and the appetite for risk in a post-2009 world.

Two years ago, in May 2010, some pioneering voices in financing – primarily, John May at Stern Brothers, Mark Riedy at Mintz Levin and John Kirkwood at Kreig DeVault – started to point attention to the bond market as a source of liquidity. Roadblocks there were, a plenty: someone was going to have to go first, USDA was going to have to get creative in terms of rewriting rules that were set up with banks in mind, such a imitations on how much that loans could be syndicated; who were the bond buyers going to be?

So, the most important news from this deal – aside from the considerable advancement of the Myriant story – is that the window has been opened on bond-financed scale-up of industrial biotech. A window that, unlike the skittish IPO window, is unlikely to flap between open and close, but only open wider.

Second, the risks that have been absorbed by the debt side. We’re heard about the three impossibles for some time. Impossible to get a project without the term of the offtake being at least equivalent to the term of the debt. Impossible to get a project funded without the feedstock contracts covering the entire portion of the loan. Impossible to get a project funded without the offtake 100% covered by contracts.

That may remain true for the bank side – but over here in bond world – the three Impossibles have been converted into the three “you’ll pay more, but it’s do-ables”.

Here, there was first-timer risk. Technology risk. Market risk. All absorbed in the rate.

Third, the rate. The project participants in this case, and their helpers, are keeping a tight lid on details – but if the structure follows other projects that have been floated around the marketplace, the guaranteed portion is going to come in with a very low single digit interest rate, and the non-guaranteed portion will come in around the mid-teens, giving an overall blended rate, we believe, around 9 percent for a deal with 60% of the debt guaranteed by USDA B&I program.

That’s the kind of blended rate where the debt service could be more than covered via the project cash flows, and still provide sufficient returns to the equity side to complete the capital formation.

Fourth, the participants. Institutions have a lot of money on the sidelines right now – and the yields for more traditional debt havens (such as US Treasuries) aren’t crashingly hot right now, and the opportunities in, say, Greek sovereign debt, come with their own, er, risks. The project market has been looking a lot more attractive for some time – but now, there are actual bond buyers taking up actual bonds over here in industrial biotech.

Fifth, the USDA’s approach to creative finance. None of this would have happened without USDA taking a keen role in restructuring the rules for scale-up debt, to accommodate a bond-based approach; rules need to be flexible so as to offer protection and stability, not suffocate markets – but grasping the vector of the market and writing rules that balance the public and private sector goals – kudos to USDA for getting it done.

Sixth, the whole barrel. When the industrial scale-up of industrial biotech was first kicked around, most of the attention was on fuels – the high-volume, low-margin cuts of the barrel. For now, and possibly some time to come, its going to be easier to assure debt service coverage, given the higher interest rates that come with earlier-stage projects, selling $6 chemicals instead of $3 fuels. For many integrated biorefineries, its chemicals now and fuels later; or chemicals now and more chemicals later. From a energy security POV, as many have come to realize, oil’s oil and doesn’t really matter if you reduce oil imports via transport fuels or bio-based chemicals – it all contributes toward a national energy policy, even if fuels offer a virtually bottomless market at scale.

Seventh, an alternative to the “lean on your (strategic) partner, do-se-do.”  For a number of months, we have seen strategic partners like Waste Management stepping up to help finance first commercial projects. For industry observers, that’s been welcome – but a debt component, ultimately, has been necessary to move the industry towards a capital structure for scale. In Myriant’s case, it has has, since January 2011, a high-visibility strategic investor in PTT Chemical, which invested $60M in the company last year.

Good to see that the company has been able, at the same time, to broaden its capital base with the bond deal. Not bad for the earlier-stage investors, too, who would have faced more dilution in the base of an all-equity first commercial project.

Eighth, the leverage. The government has found a good home in bio-based, if this deal shows the kind of leverage they would like to have, in a post-Solyndra world, to show how a modest US public investment can unleash action in the private sector. The loan guarantee portion, for the USDA, is $15 million, which means a $1.5 million cash investment in the reserve against defaults; and there’s the $50M invested by DOE out of the Recovery Act. Against that, well over $100 million invested by debt and equity holders in the private sector.

Reaction at Myriant

“It is a tremendous accomplishment for Myriant to be the first renewable chemicals company to complete a project financing under the USDA’s B&I program and we’re delighted to partner with them to demonstrate the power of partnerships between the public and private sector,” commented Stephen J. Gatto, Chairman and Chief Executive Officer for Myriant. “Rigorous analysis has shown, and our direct experience is proving, that U.S. based manufacturers of renewable chemicals derived from natural sources can be the world’s lowest cost producers of these products. This means that the chemicals manufacturing sector in the U.S., which has seen a trade surplus of $13.4 billion in 1998 shrink to a loss of $2.7 billion by 2008 and a loss of 130,000 jobs to outsourcing, can be revived and accelerated in new renewable, eco-friendly ways for a return to world-leading growth in innovation and the associated prosperity it can deliver here in the United States.”

The $25 million USDA B&I Loan Guarantee complements a $50 million cooperative agreement that Myriant received from the United States Department of Energy (DOE) and a $10 million grant from the Lake Providence Port Commission and the Louisiana Department of Transportation. Of the $25 million in bonds sold, $15 million are guaranteed by the USDA under the B&I program.  Sales of the unsecured portion of the bonds indicate investor confidence in the future financial performance of Myriant’s Lake Providence bio-refinery. Stern Brothers acted as the bond placement agent. HEARTLAND Bank, Little Rock, Arkansas, is the Lender of Record through the B&I Loan Program and will service the bonds.

Reaction at USDA

“America’s growing domestic bio-based industry is a vital part of the Obama Administration’s all-of-the-above energy strategy to create jobs and protect our environment by reducing our dependence on petroleum-based products,” said John Padalino, Acting Administrator for Rural Business Services. “I am delighted that USDA was able to work with Myriant to help make this opportunity possible.”

Reaction at BIO

Brent Erickson, Executive Vice President of the Biotechnology Industry Organization, said, “On behalf of the Biotechnology Industry Organization, I congratulate Myriant and thank the USDA for its ongoing support, which has been critical to unlocking private capital for innovative bio-refineries. Myriant is at the forefront of a growing renewable chemical sector and the first in that sector to receive a USDA loan guarantee. Their success illustrates the potential for opening rural development and renewable energy programs to this sector.”

More on Myriant

Showa Denko and Myriant sign offtake deal

A look under the Myriant hood via its IPO filing

More on bond side deals

The Name is Bond (May 2010)

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