Private activity debt issued for a German wood pellet company could go up in smoke in the wake of bankruptcy filings on both sides of the Atlantic.
Louisiana Pellets Inc. and German Pellets Louisiana LLC filed for reorganization on Feb. 18, following a default on bonds issued for them by the Louisiana Public Facilities Authority.
The Chapter 11 filings came less than seven months after the authority issued its final tranche of $390.2 million of unrated bonds for the firms.
Bond proceeds were used to build a wood pellet plant beset by construction and weather problems in Urania, a small lumber town with about 1,300 residents in north-central Louisiana.
The same German company also has an earlier bond-financed investment in Texas.
Owners Anne and Peter Leibold structured their first venture in the U.S. similarly, using $186.5 million of bonds issued by the Sanger Texas Industrial Development Corp. in 2012 to build a wood pellet production facility in Woodville and a five-silo storage and shipping facility in Port Arthur.
The U.S. operations are part of the “German Pellets” family of companies - as Peter Leibold calls them in a
That firm filed for insolvency in Germany on Feb. 10.
The bankruptcy of the German parent firm to date has been undisclosed on the Municipal Securities Rulemaking Board’s EMMA filing system in connection with the bonds issued for the Texas and Louisiana projects.
The Texas plants are “not involved or impacted” by the Louisiana bankruptcy, German Pellets spokeswoman Claudia Rohr told The Bond Buyer Tuesday.
On Feb. 2, a customer bought $3 million of German Pellets Texas bonds, issued in 2012 and maturing in 2038, for 97 cents on the dollar to yield 8.29%.
The Louisiana companies filed a voluntary bankruptcy petition “to preserve and enhance the value of the facility and their assets, and to provide for additional time and financial flexibility to evaluate restructuring and reorganization options,” Rohr said.
Both Louisiana Pellets and German Pellets Louisiana are “debtors in possession and remain in full control and possession of their assets and businesses, subject to the supervision of the bankruptcy court,” according to Rohr.
She did not respond to questions asking if the insolvency of German Pellets GmbH could impact the projects in Louisiana or Texas, or whether the company intends to restructure the Louisiana bonds.
The German parent firm filed for bankruptcy with less than 5,000 Euros cash on hand, according to a
An unsecured creditors’ committee was appointed Tuesday in Louisiana’s jointly administered bankruptcy case.
The committee, chaired by Entergy Louisiana, includes Elektro Fischer USA, an electrical contractor in Woodville, Texas.
The Chapter 11 petition was filed after the company defaulted on the bonds in January after drawing down reserves. Around the same time, a mechanics’ lien was also placed on the Urania project seeking nearly $88,000 for unpaid work – all reported on EMMA.
Peter Leibold, chief executive officer of Louisiana Pellets, said in a Feb. 19 statement filed with the court that a number of contractors had asserted Louisiana Private Works Act liens on the property that exceeded $8 million.
Louisiana Pellets used private placements to sell $360.8 million in unrated taxable and tax exempt private-activity bonds, which limits public access to promises made to investors in bond documents.
The offering memorandums are only available to investors through the underwriter for bonds in the Louisiana and Texas projects, according to EMMA.
The bonds were issued between 2013 and 2015 to build the 393,000-square-foot facility in Urania, near the Kisatchie National Forest, to produce wood pellets from paper and pulp mill wood waste.
The pellets were to be shipped to Europe as a renewable energy source to help alleviate the dependence on coal there.
In his court statement, Peter Leibold said that phase one of the project failed electrical testing in late 2015 and an independent surveyor is expected to report “significant deficiencies in the electrical system requiring remedial work.”
A second phase of the facility is still under construction, and may require an additional 12 months to complete.
The Urania facility was expected to create 210 construction jobs in addition to 80 direct and 250 indirect jobs with an annual payroll of $4.5 million, according to the Louisiana Public Facilities Authority’s 2014 annual report.
Louisiana Economic Development, the state department that doles out business incentives, reported that by the fourth quarter of 2015 Louisiana Pellets employed 67 persons, the highest number of workers employment at the site.
LED “acknowledged project completion of the Louisiana Pellets facility on Jan. 12, with a total capital investment of $293.1 million,” the agency said in a statement to The Bond Buyer.
However, the project’s status is murky, according to reports by the former bond trustee, Wells Fargo Bank NA.
In a Jan. 19 default notice on EMMA, Wells Fargo Bank said it had been advised by the Construction Monitor that week “that there are very few personnel at the project site and that the electricity at the project has been turned off as of December 22, 2015.”
Wells Fargo was replaced as trustee by UMB Bank NA, although the exact date of the change was not among filings on several CUSIPs for the Louisiana bonds.
UMB notified bond investors promptly about the Chapter 11 bankruptcy filing in February, but no notices have been filed since then even though UMB has agreed to provide a post-bankruptcy loan to the financially struggling Louisiana companies, according to court documents.
Louisiana Economic Development said the Urania project has qualified for millions in state incentives, although none have been paid so far.
Louisiana Pellets applied for a payroll rebate of up to 6%, and either a sales tax rebate on qualifying capital expenditures or a 1.5% refundable tax credit on the total capital investment, the LED said.
German Pellets applied for $2,295,750 in nonpayroll benefits, and an annual payroll rebate for up to 10 years for creating new direct jobs. The Louisiana Board of Commerce and Industry is scheduled to consider the application on March 22.
Louisiana Pellets is also eligible for an abatement of local property taxes for new capital investment and additions to the manufacturing site starting this year - savings estimated at $75.5 million over 10 years, according to Commerce and Industry Board documents.
In August 2015, the company qualified for a tax exemption on $106,543 in facility telephone system, fixtures and furnishings at the plant site.
A third company involved in the Urania project, Caterpillar Financial Services Corp. qualified for more than $2 million in the industrial tax exemption program on its building, equipment and machinery.
“Louisiana Pellets will continue to be eligible to participate in the [the state’s incentive] programs so long as it continues to meet program requirements,” the LED said, in response to a question asking about the state’s policy regarding companies that file for bankruptcy and qualify for incentives.
The agency also said it’s too early to know how the company will emerge from bankruptcy, and whether it will emerge as the same entity, reorganized, or with a successor.
The lead bankruptcy case is in the U.S. Bankruptcy Court for the Western District of Louisiana. The case number is 16-80162.
