Nevada garbage-to-jet-fuel project defaults; Indiana follow-up on hold

A California-based company's plan to sell up to $500 million of tax-exempt environmental improvement revenue bonds through the Indiana Finance Authority to build a garbage-to-jet fuels facility in Gary is on hold after the company's bonds for a similar plant in Nevada went into default.

Pleasanton, California-based Fulcrum BioEnergy sold about $290 million of environmental improvement revenue bonds from 2017 to 2020 through the Nevada Department of Business and Industry to build a plant near Reno. On Tuesday bond trustee UMB Bank, in a notice posted on the Municipal Securities Rulemaking Board's EMMA bond disclosure website, said those bonds for the Fulcrum Sierra project, which began operations last year, were in default and demanded, at the direction of the holders of a majority of the debt, accelerated repayment of the 30-year bonds.

Fulcrum had been planning to sell up to $500 million of tax-exempt environmental improvement revenue bonds later this month to build a similar plant, called Fulcrum Centerpoint, in Gary, Indiana. Construction on that plant was to have begun next year and become operational in 2026. The facility was scheduled to convert about 530,000 tons per year of "feedstock" from processed trash into about 31 million gallons of synthetic crude oil, which would then be processed into low-carbon jet fuel. Morgan Stanley was set to underwrite the Indiana bonds.

Fulcrum BioEnergy

Neither Fulcrum bond issue was rated.

"The decision to not move forward with the Centerpoint bonds has no relation to the Sierra bonds," said Rick Barraza, vice president of Fulcrum Bioenergy. "Fulcrum wants more time to develop the Centerpoint project."

Barraza did not provide any information as to why the Sierra bonds went into default, but said, "Fulcrum is working closely with UMB and the Sierra bondholders to finalize a forbearance agreement to address the current matter. We remain steadfast in our commitment to both the Sierra and Centerpoint projects and their respective bondholders."

The Centerpoint deal was set up as an "escrow bond" that was to refinance $500 million of Series 2022 bonds the company sold through the IFA last November, which are subject to a mandatory tender Nov. 15. It originally sold $375 million with a similar structure in 2021.

The escrow bonds are sold because private-activity bond allocations are issued with an expiration date and will be converted to long-term financing when the firm is ready to deploy the proceeds, according to a frequently-asked-questions page on Fulcrum's website.

Barraza said "all current bondholders will be repaid with funds in the dedicated escrow bank account, along with any related interest then due and payable."

According to data posted on EMMA, $200,000 of the Nevada 5.75% bonds traded most recently on June 8, 2023, at a price of about 87 cents on the dollar, where the 2038 maturity yielded 8.5%, a 487-basis-point spread to the MMD single-A yield curve for that date and maturity, according to TM3.

On March 8, 2022, $2.1 million of same maturity of the lightly traded bonds changed hands at a price of 102.75, where they yielded 6.42%, a 412 bp spread.

In October 2019, more than $10 million of the bonds were traded at more than 115, where they yielded about 4.8%.

The Sierra and Centerpoint projects are part of an $800 million program that Fulcrum hopes will produce about 400 million gallons of sustainable jet fuel annually.

According to Fulcrum, sustainable aviation fuel is an alternative to traditional jet fuel that is made from renewable resources, such as garbage, rather than crude oil.

Rather than burning or incinerating household trash, Fulcrum uses a process known as gasification, which uses a high temperature and low oxygen environment to break the feedstock down into basic molecules, like hydrogen and carbon.  The resulting gas — known as syngas — is then converted into fuel.