Of Esters and Investors: The story of Prairie Catalytic’s leap to scale

On November 29, 2017, Prairie Catalytic, a subsidiary of Greenyug, closed on the sale of project bonds to finance its first commercial production facility to develop a 50,000 metric tons per year urethane grade ethyl acetate production facility that is located adjacent to the Archer-Daniels-Midland Company  ethanol production facility in the City of Columbus, Platte County, Nebraska.

As new as the process is, as new as Prairie Catalytic is — the most novel aspect of this story is the financing, which has been tough and involved a spectacular amount of creative structuring to get done.

It’s been a long time coming. At one stage, there were hopes to commence construction a year ago and start production bin early 2018. Now,  construction of the facility is estimated to take approximately 12 months with commercial operations expected to begin in the fourth quarter of 2018.  ADM’s corn wet mill in Columbus will supply the project with ethanol feedstock and other services. HELM AG and Greenyug signed an off-take agreement some time back for the entire production.

What are the drivers?

Bottom line, ethanol prices are in the dumps, and US ethanol production exceeds demand as a gasoline additive. So, along comes Greenyug to take the excess ethanol and convert it to high-value ethyl acetate at costs that are a fraction not only of US “fossil-based companies” but also competing biotech’ers.

Says here that it costs $80M to build a 55-kiloton ethyl acetate plant that uses conventional fossil feedstocks, and $14M to operate it, But it only costs $20M to build a plant using Greenyug technology and $10M to operate it. So there.

What is ethyl acetate, anyway?

Ethyl acetate, it’s that sweet-smelling ester found in nail polish and glue. There, think adhesives, paints, coatings, pharmaceuticals, cosmetics, printing inks, packaging and industrial solvents. Not to mention decaffeinating tea or coffee.

Ethyl acetate is a low toxicity specialty solvent used in a variety of industrial and consumer product applications in paint, coating, printing ink and other industries, including coating formulations such as epoxies, urethanes, cellulosics, acrylics and vinyls.

Old idea, new process

It’s not rocket science for chemistry kings to find ways to make ethyl acetate from ethanol. What’s new is the simplicity of the process, low capex and low opex process. Specifically, $20 million CAPEX to generate a $19M profit from a 50 kiloton per year EA plant.

Here’s what’s been typically used as a fossil-based process. It’s a one-step conversion described as “reactive distillation”. For chemistry buffs, here’s how it works out:

2C2H5OH -> CH3-COO-CH2-CH3+2H2

As you see, there’s some tasty hydrogen as well as ethyl acetate. Here’s what Greenyug has to say in its most recent patent app:

A reactive distillation process producing high purity ethyl acetate from ethanol comprises feeding a feed stream comprising ethanol to a reactive distillation column, contacting the ethanol with a catalyst, dehydrogenating ethanol over the catalyst in the liquid phase during the distillation process, removing ethyl acetate during the distillation process as a bottoms product, and removing hydrogen during the distillation process as a top product.

The Greenyug backstory

Greenyug developed its patented technology at its Santa Barbara, California Research Facility and continued the scale-up at its fully integrated demonstration plant in India. Greenyug has developed a proprietary platform to add value to bioethanol by upgrading it into a variety of bio-based chemicals with broad market appeal. Greenyug Ethyl Acetate, the first of such products, is a widely marketed specialty solvent used extensively in products such as paints, coatings, pharmaceuticals, adhesives and a variety of consumer goods.

The financing backstory

At the top of the story we mentioned that perhaps the most compelling aspect of this story is the financing.

Bottom line, too many first commercials that are struggling to get financed because of unguaranteed debt. Even government loan guarantee programs — designed to accelerate the adoption of new technologies by shifting risk to the public sector — don’t guarantee 100% of the debt.

As Fagre Baker Daniels partner John Kirkwood told The Digest, “it doesn’t fit anywhere but in the institutional debt markets.”

In this case, the financing was arranged by Stern Brothers, and was led by industry veteran Les Krone, Managing Director.  Stern Brothers & Co., founded in 1917, is an independent, certified woman-owned business enterprise (WBE) investment bank whose primary focus is public and infrastructure finance.

The financing was provided by means of an institutional placement of limited-recourse project bonds, partially secured by a loan guarantee issued by the United States Department of Agriculture (USDA) under its Business & Industry Guaranteed Loan Program, which provided both construction and permanent financing for the project.

Heartland Bank serves as the “lender of record” for the USDA to administer and service the loan guarantee and the guaranteed loan originated by the proceeds of the project bonds.

This first commercial scale biochemical production facility is the second financed by Stern Brothers using a B&I loan guarantee coupled with institutionally-placed project bonds.  The Project Finance Group at Faegre Baker Daniels LLP served as counsel for Stern Brothers and Heartland Bank and was headed up by John Kirkwood, a partner in FBD’s Indianapolis offices, and national leader in project financings for the renewable and cleantech industries.

All that lovely hydrogen

The world is short on peace, love, and hydrogen. And there’s a secret byproduct here, your friend the single-atom wonder gas.

Namely, Greenyug has a one-step conversion described as:

A reactive distillation process producing high purity ethyl acetate from ethanol comprises feeding a feed stream comprising ethanol to a reactive distillation column, contacting the ethanol with a catalyst, dehydrogenating ethanol over the catalyst in the liquid phase during the distillation process, removing ethyl acetate during the distillation process as a bottoms product, and removing hydrogen during the distillation process as a top product.

We can think of a dozen processes that could use a paid-for source of renewable H2, and so one kind of wonders if there will  be, sometime, another small commercial or demonstration-scale facility, adjacent to the ADM Columbus plant, to use all those tasty renewable hydrogen atoms.

The Bottom Line

Deals that get done are worth studying with the kind of attention to detail usually reserved for the interpretation of Egyptian hieroglyphics or the parsing of the US tax code. There’s much for the entire industry to observe and learn in the structure of this deal.

Some key points: he abundant feedstock and straightforward supply from a credit-worthy partner, the co-location to reduce cost, a system that simplifies production and beats fossil petroleum straight-up on cost, a credit-worthy offtaker and an ironclad offtake deal for the whole of the production, a government loan guarantee, and an innovative bond financing stricture for unguaranteed debt.

Put those together and presto-magic! The deal gets done and now it is on to construction, commissioning and commercial operation. Some daunting hurdles yet to clear but major ones are already in the rear-view mirror on this one.