CHICAGO - Posey County, Ind. is coming to market Tuesday with $1.26 billion of six-month notes for a stalled $2.5 billion nitrogen fertilizer plant in Indiana.
The county is acting as a conduit for Midwest Fertilizer, which is owned by Fatima Group, one of Pakistan's largest conglomerates.
It plans to build a fertilizer manufacturing plant, promising 200 permanent jobs, near the county seat of Mount Vernon.
It will be the fifth time that Midwest Fertilizer has remarketed the notes.
The state, through the Indiana Finance Authority, originally issued the bonds in December 2012 with a six-month maturity. The finance team expected to roll it over into long-term, 30-year bonds by the end of the first six-month period.
Instead the company has been forced to remarket the notes repeatedly amid various delays.
"We would never incur the costs and effort and the pain if we didn't have to, but we continue to put millions and millions of dollars into this project and that's a testament to the confidence that this project is going to go ahead," said Michael Chorlton, President and CEO of Midwest Fertilizer.
The company is negotiating a final Engineering, Procurement and Construction contract, which will be structured as a fixed-price contract.
Previous negotiations late last year failed, according to bond documents.
The company is now in the midst of trying to hammer out a final contract with TKIS, a subsidiary of ThyssenKrupp AG. TKIS has been involved in nitrogen fertilizer plants for more than 80 years, according to bond documents.
"Nothing is going to be finalized until the EPC is finalized," Chorlton said. "You have to get that finalized so everyone knows what their final costs are, and at that point you can get your investors, tax increment financing, and the whole bunch of pieces that come together."
The team now hopes to roll the debt over into long-term bonds by the November 2015 maturity date of next week's deal.
A groundbreaking originally set for June has now been pushed back to the fall, he said. The company needs to complete the long-term financing to formally launch the project.
The growth of the domestic oil industry - and the sector's recent downturn - has affected the project, Chorlton said.
"It's been a very challenging environment, where all of a sudden people are drilling for oil like crazy and they're building like crazy, and engineering companies have to catch up with their capacity," he said. "Actually right now we're catching fairly good fortune that all of a sudden oil drilling is getting curtailed. We're benefiting from some of the changes."
When it does come to market, the long-term financing is expected to be one of the largest junk-rated private activity bond deals to date.
Political opposition, which stalled the project early on, has apparently been largely resolved.
Indiana in early 2013 dropped its support for the project after U.S. defense officials raised concerns about the use of Fatima's fertilizer product in explosive devices deployed against American soldiers in Afghanistan and Pakistan.
Gov. Mike Pence, just a day after taking office, halted the project in January 2013 and formally dropped all state support in mid-May.
The company scrambled to arrange a new deal with Posey County, site of the proposed plant. The county stepped in as conduit, and has since remarketed the notes four times.
The original deal was timed to beat the expiration of the Midwestern Disaster Area Bond program; Congress created the program in 2008 allocating additional private activity bond volume for bonds that would otherwise have to forgo tax-exemption because they benefit a for-profit company.
Federal defense officials have since negotiated with Fatima and praised the firm's efforts to develop a less-explosive alternative. Pence said last April that he would reopen talks with the company, though it's not clear whether he has met with them since.
Local officials strongly support the project.
"We're just sitting here waiting for them to get their final contract and get this thing up and running," said John Taylor, executive director of the Posey County Economic Development Partnership. "No matter what the governor feels, it's not going to stop the project," he added. "This is a local project."
The plant is expected to carry a final price tag of $2.55 billion. In addition to the $1.3 billion of bonds, the company expects to borrow up to $400 million, and Fatima and other partners will kick in up to $900 million in equity, according to bond documents.
Debt for a similar nitrogen fertilizer manufacturing plant in Iowa, owned by an Egyptian company, was converted to a $1.2 billion long-term bond financing in April 2014.
There are also plans to expand an existing plant in Louisiana.
Chorlton noted there are not many of the plants in North America, and that he's not worried about competition.
Roughly half of nitrogen fertilizer in the U.S. is imported.
"There's plenty of room," he said. "We'll be able to displace the imports."
Citi and Guggenheim Securities are the remarketing agents. Barnes & Thornburg LLP is bond counsel.
