KiOR in Default on Loan
// R-Squared Energy Blog
Update 4:30 PM PST: This afternoon KiOR filed a Form 8-K with the SEC. This form is used to notify investors of important material events. In the report, KiOR indicated that they had received a Notice of Default and Acceleration from the Mississippi Development Authority (MDA) notifying KiOR that all obligations are now due and payable within three (3) business days from November 3, 2014. This default accelerates KiOR's other loan obligations. In addition to the $78.6 million now payable to the MDA, KiOR says this default "accelerates the Company's obligations under the following debt agreements:"
- Loan and Security Agreement, dated January 26, 2012, among the Company and each of 1538731 Alberta Ltd. as agent and lender, 1538716 Alberta Ltd. and KFT Trust, as amended on March 17, 2013, October 21, 2013 and March 31, 2014. As of November 3, 2014, an aggregate amount of approximately $127.8 million is immediately due and payable. As a result of the MDA Notice, the loan accrues an additional four percent (4%) per annum default interest rate.
- Senior Secured Convertible Promissory Note Purchase Agreement, dated October 18, 2013, among the Company, KiOR Columbus, KV III, KFT Trust and VNK Management, LLC and KV III in its capacity as agent, as amended on October 20, 2013 and on March 31, 2014. As of November 3, 2014, an aggregate amount of approximately $95.7 million is immediately due and payable.
- Senior Secured Convertible Promissory Note Purchase Agreement, dated March 31, 2014, as amended on July 3, 2014, among the Company, KiOR Columbus and KFT Trust and KFT Trust in its capacity as agent. As of November 3, 2014, an aggregate amount of approximately $10.4 million is immediately due and payable.
So KiOR now owes, immediately due and payable, over $312 million. On the plus side, the 8-K notes "KFT Trust made a Protective Advance to KiOR in the aggregate principal amount of $1,102,691." That is such a specific amount that I wonder if that might be the bill from the investment bank that has been shopping KiOR during the forbearance period.
My guess is that this now triggers a bankruptcy declaration next week.
During the administration of former Republican Governor Haley Barbour, the state of Mississippi provided a $75 million no-interest loan to advanced biofuel company KiOR (OTCMKTS: KIOR) to build a plant in that state. Last Friday KiOR was supposed to make a $1.875 million payment on the loan. The loan payment had been due at the end of June, but KiOR paid $250,000 for a 120-day reprieve to give them more time to explore options on selling or merging the company, which has had its plant in Mississippi idled all year. The loan originated with the Mississippi Development Authority (MDA), and they confirmed for me this morning that KiOR missed the October 31st deadline, and a three-day grace period on the loan had ended on Wednesday, November 5th with no payment. I spoke with the MDA this morning, and afterward they sent me the following written statement:
"As of today (November 7, 2014), KiOR has not made its loan payment. MDA is working closely with its counsel and financial advisors to evaluate all options with the intent of finding the best solutions for the state in regard to the KiOR Columbus project. MDA continues to assess any and all rights and remedies it has available and will provide updates once next steps are fully determined." -Marlo Dorsey, Chief Marketing Officer, Mississippi Development Authority
So what does this mean? It means that KiOR is now in default on the loan, and the MDA can legally seize the plant and demand the remaining balance of $69.4 million on the loan. This would allow KiOR's other lenders to demand immediate payment of the $250 million it owes them. KiOR acknowledged in their most recent Quarterly Report to the Securities and Exchange Commission (SEC) that this action would likely force the company to declare bankruptcy:
In the event of an acceleration of amounts due under its debt instruments as a result of an event of default, the Company will not have sufficient funds and does not expect to be able to arrange for additional financing to repay its indebtedness or to make any accelerated payments, and the lenders could seek to enforce their security interests in the collateral securing such indebtedness, in which case the Company will likely be forced to voluntarily seek protection under the U.S. Bankruptcy Code.
Where does this leave the state of Mississippi? The ball is in their court, but the state is in a difficult position. Their best option was for the company to find a buyer so the loan from the state could be repaid. But KiOR presently owes $250 million, lists assets of only $58 million (and $50 million of that is for the plant that isn't running), and a market capitalization of under $5 million. It is also facing another $1.875 million payment at the end of next month. It is not surprising that in that financial condition the company didn't find a buyer during their 120-day forbearance. But if the state exercises their right to seize the plant, they are then in the position of trying to find a buyer or of selling the plant for scrap value (which will be less than $50 million).
The most recent precedent for this type of outcome is in the Range Fuels bankruptcy. Following more than $160 million in venture capital, a $76 million grant from the U.S. Department of Energy, a $6.25 million grant from Georgia, and an $80 million loan guarantee from the U.S. Department of Agriculture, Range Fuels was still unable to produce transportation fuel. They were forced to declare bankruptcy, and the plant was auctioned off to pay for part of its debts. The plant ultimately sold at auction for $5.1 million.
By defaulting and failing to negotiate additional time with the state of Mississippi — and allowing themselves to be delisted from the NASDAQ without a fight — it appears that KiOR is resigned to its fate. That fate presently lies in the hands of the state of Mississippi, which will seek the best possible outcome for taxpayers while trying to manage the political fallout which is sure to come.
What do I believe will happen? I still think bankruptcy is the most likely outcome given the company's relative debts and assets, and considering that the plant hasn't run all year and most of the employees have been let go. At this point they appear to have given up stalling for more time, and they would need to be extremely creative to craft a scenario in which they manage to avoid bankruptcy. Their only hope at this point is with the MDA deciding that forcing them into bankruptcy isn't the best scenario for Mississippi taxpayers.
Link to Original Article: KiOR in Default on Loan
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