LIQUIDITY |
12 Months Ended |
|---|---|
Dec. 31, 2023 | |
| Notes to Financial Statements | |
| LIQUIDITY |
NOTE B - LIQUIDITY
The accompanying consolidated financial statements have been prepared on the basis that the Company will continue as a going concern. As shown in the accompanying consolidated financial statements, the Company has incurred a net loss applicable to its common stockholders of $89.9 million during the twelve months ended December 31, 2023, and had an accumulated deficit of $261.7 million at December 31, 2023. At December 31, 2023, the Company had working capital deficit of $217.5 million and a stockholders' deficit of $129.2 million. Our Facility is still under construction, and we do not expect to generate any revenue from our Facility until the commencement of commercial operations at the Facility.
Various scheduling issues experienced to date with CTCI Americas, Inc., a Texas corporation (“CTCI”), our lead contractor, and other factors beyond our control have delayed the completion of the project. Such factors have included, by way of example, poor planning and execution by the engineering, procurement and construction contractors for the project, the impact of the COVID-19 pandemic, unavailability of skilled labor, material shortages and other matters. Delays to engineering activities have resulted from, among other things, inadequate engineering staffing, and the failure or inability to progress engineering in a timely, efficient, and collaborative manner. The project has also experienced engineering, procurement and construction issues with our contractors, including lack of timely scheduling, untimely change order estimations, delay in ordering certain materials and unanticipated turnover of personnel to fully handle the workstreams of
the project. We also experienced inefficiencies and delays from contracted engineering and specialty firms due to the unavailability of skilled labor, delays in contractors performing required material fabrication, labor inefficiencies, productivity issues, material shortages, supply chain disruption, and transportation delays. The project has experienced such delays despite steps taken by us to mitigate such delays. We have taken steps for CTCI, to accelerate the completion of the project, including the hiring of a third-party project management services group during 2023, although further delays beyond estimated timelines, or unexpected construction costs including any unfavorable negotiation of change order claims, could increase the cost of completion beyond our budgeted costs. Based on the schedule provided to us by our lead contractor, CTCI, and current work effort we believe that the Facility will commence initial and commercial operations during the second quarter of 2024, however there can be no assurance that operations will commence within this time period. Revenues from the Facility are expected to commence with commercial operations. In addition, CTCI continues to claim that it has incurred costs in excess of the guaranteed maximum price set forth in the Engineering, Procurement and Construction Agreement with CTCI (the “CTCI EPC Agreement”), as amended, and is seeking at least $760.0 million in total compensation through the end of the project. While the Company is evaluating CTCI’s claims, we dispute such claims, and the Company intends to vigorously defend its position, including by asserting all rights, defenses and counterclaims that the Company may have under the CTCI EPC Agreement and at law. Accordingly, the Company has accrued $372.6 million for CTCI’s claims in the consolidated balance sheet as of December 31, 2023 which includes contingent accrued interest of $8.9 million. Therefore, as of December 31, 2023, the amount of the EPC deferred payment totaled $602.2 million which includes the contingent liability of $372.6 million. An unfavorable outcome with CTCI on this dispute may materially impact our future liquidity.
In addition, ExxonMobil Renewables LLC (“Exxon”), in its capacity as a preferred stockholder of the Company, filed a complaint against the Company in the Court of Chancery of the State of Delaware to compel inspection of the Company’s books and records under Section 220 of the Delaware General Corporation Law in relation to alleged wrongdoing by the Company’s management (“Section 220 Demand”). The Company and Exxon have jointly filed a stipulation with the court on an agreed scope of voluntary document production by the Company. While we deny the allegations described in the complaint, it is possible that one or more additional stockholder suits could be filed pertaining to the subject matter of the Section 220 Demand. The Section 220 Demand and the potential risk of additional stockholder suits has created additional uncertainties around our ability to successfully obtain third party financing required to complete the Facility and other commercial financing for working capital needs (See Note K - Commitments and Contingencies - Legal for further information).
In addition, ExxonMobil Oil Corporation (“EMOC”), as counterparty to that certain Product Offtake Agreement, dated April 10, 2019 (the “Offtake Agreement” or “POA”), has notified the Company that it has terminated the POA on the basis that the Start Date under the POA of June 30, 2023 was not achieved. While the Company disputes EMOC's purported termination, such purported termination of the POA has created a condition that raises an uncertainty as to the POA and renewable diesel revenues to be received pursuant to the POA. Termination of the POA will result in an Event of Default under our secured term loan agreement (the “Senior Credit Agreement”) (See Note K - Commitments and Contingencies - Legal for further information). The Company currently does not have any other offtake arrangements for renewable diesel and naphtha other than the Product Offtake Agreement and is actively pursuing all available options, including alternative offtake arrangements, to mitigate potential losses that could occur as a result of ExxonMobil's purported termination.
As of December 31, 2023, the Company’s primary source of liquidity is cash on hand and available borrowings under its Senior Credit Agreement. As of April 9, 2024, the Company entered into Amendment No. 14 to the Senior Credit Agreement that provided for, an increase to the Tranche D loan facility up to $165.0 million, providing $25.0 million of new funding (See Note M - Subsequent Events for further information). As of April 16, 2024, the Company is operating with $9.0 million of borrowing capacity under the Senior Credit Agreement. While our Senior Lenders continue approving and funding draw requests on an as-submitted basis and there are ongoing discussions with the Senior Lenders concerning increasing borrowing capacity under the Senior Credit Agreement, there can be no assurance that such future draw requests will be successful. In addition, under the Senior Credit Agreement, the Company is required to raise $10.0 million by April 30, 2024 and an additional $170.0 million by July 5, 2024 to refinance a portion of the senior debt, and will require $117.1 million for cash interest payments by June 30, 2024 (if not otherwise permitted to pay interest in-kind) related to the Senior Credit Agreement. The Senior Credit Agreement also requires that we maintain a debt balance of not more than $470.0 million on and after June 30, 2024, and $370.0 million on and after June 30, 2025, and if proceeds from the required capital raises or cash from operations are insufficient to pay down the senior debt to achieve these debt balances and interest, we will be required to undertake additional financings to meet the target debt balance of $470.0 million on and after June 30, 2024. As a result, as of December 31, 2023, $170.5 million of the Senior Credit Agreement balance is
included in the current portion of long-term debt. The current portion is comprised of (1) payment required based on the Tranche D waterfall structure to include principal, interest and premium of a 1.25x multiple on invested capital (“MOIC”) and (2) additional payment of approximately $26.5 million required to achieve the targeted debt balance of not more than $470.0 million after successful raise of the $170.0 million by July 5, 2024. Also, under the terms of the Series C Preferred Stock, the Company will be required to pay dividend payments of $29.7 million starting June 30, 2024 through April 16, 2025. In addition, we have a fixed payment obligation of $30.8 million, as subsequently amended in January 2024, that is due to be paid in full by December 2024.
In addition to the required cash outflows related to our debt and Series C Preferred Stock cash obligations, the Company estimates that it will require the following additional funding through April 16, 2025:
•$25.7 million to fund the completion of the Facility and for other operational requirements, and
•$40.0 million to fund the initial feedstock required for operations.
We will also be required to begin making installment payments of our EPC deferred payment along with payment of a deferred amount that we may be required to make to our project management service provider (as further discussed in Note K - Commitments and Contingencies) once we achieve Substantial Completion, as defined by the CTCI EPC Agreement, as amended, which management does not estimate will occur until the first quarter of 2025. The EPC deferred payment and deferred payment (excluding contingent amounts) to the project management service provider totaled $229.7 million and $5.3 million, respectively, as of December 31, 2023.
The uncertainty of the timing of the completion and costs of the Facility, the lack of significant operating cash flows until the initial revenues from the Facility begin, no current committed equity or debt financing and the significant cash shortfall to meet the Company’s financial obligations, represent events and conditions that raise a substantial doubt about the Company's ability to continue as a going concern for a period of at least one year from the time the financial statements are issued.
Management is currently pursuing and evaluating several plans to mitigate the conditions or events that raise a substantial doubt about the Company’s ability to continue as a going concern, which include the following:
•Exercising the Company’s rights under the CTCI Agreement to recover liquidated damages to which the Company may be entitled;
•Engaging with third parties, including our existing senior lender group and other stakeholders, to raise additional debt or equity capital, including developing deleveraging strategies;
•Evaluating the Company’s existing arrangements and potential financing and transaction structures to minimize our current and future credit support obligations;
•Accelerating Camelina development and expanding the Company’s Camelina business generally;
•Pursuing other potential supply and offtake arrangements
•Requesting waivers from our lenders to the Senior Credit Agreement to be in compliance; and
•Pursuing initiatives to reduce operating expenses.
There can be no assurance that sufficient liquidity can be obtained on terms acceptable to the Company, or at all. As a result, and given the high volatility in the capital markets, as well as our ongoing legal matters with Exxon, the Company has concluded that management’s plans do not alleviate the substantial doubt about our ability to continue as a going concern beyond one year from the date the consolidated financial statements are issued. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
Financing Agreements
Credit Facilities
BKRF OCB, LLC ("BKRF OCB"), an indirect, wholly-owned subsidiary of GCEH, is the primary borrower under our $559.6 million Senior Credit Agreement as of December 31, 2023. The purpose of this facility is to provide cash to BKRF to facilitate the construction of the Facility.
On August 5, 2022, certain subsidiaries of the Company entered into Amendment No. 9 to the Senior Credit Agreement to, among other things, increase the Tranche B Commitments thereunder by $60.0 million to $397.6 million, extend the start date of the Facility to March 31, 2023 (which has been extended to April 30, 2024) and implement certain other commercial arrangements as described therein. Existing defaults and potential events of defaults under the Senior Credit Agreement, if any, were also waived by the lenders in connection with the effectiveness of Amendment No. 9. As payment of the amendment and upsize premium, the Company issued to the lenders warrants to purchase up to 7,468,929 shares of the Company’s common stock, exercisable until December 23, 2028 at an exercise price of $2.25 per share.
On January 30, 2023, we entered into Amendment No. 10 to our Senior Credit Agreement, pursuant to which the lenders agreed to, among other things, a series of Tranche C Commitments in an amount of up to $40.0 million, which were available to be drawn through June 30, 2023. In addition, the amendment provided for (i) an increase in the underlying interest rate on the loans following the effective date of the amendment from 12.5% to 15.0%, (ii) the ability to pay interest in kind (in lieu of a cash payment) for the periods ending March 31, 2023 and June 30, 2023, (iii) a change in the maturity date to December 31, 2025, (iv) an agreement to raise at least $10.0 million in new capital by March 31, 2023, and $100.0 million by April 1, 2024, and (v) certain governance rights, including certain limited rights for the administrative agent to put forth nominees to our Board of Directors. The requirement to raise at least $10.0 million in new capital was extended to June 30, 2023.
We also agreed, in relation to Amendment No. 10 of the Senior Credit Agreement, to pay to the lenders an upsize premium of $2.0 million and issue warrants to purchase up to 15,000,000 shares of the Company’s common stock, exercisable until December 23, 2028 at an exercise price of $0.075 per share. Pursuant to Amendment No. 10, the Company also agreed to grant to the administrative agent a security interest in all assets of SusOils, pursuant to a pledge and security agreement, dated as of January 30, 2023, by and among the Company, SusOils, and Orion Energy Partners TP Agent, LLC, as the collateral agent (the “Security Agreement”). If prior to June 30, 2025, the principal amount of the loans under the Senior Credit Agreement is below $300.0 million, or on and after June 30, 2025 the principal amount of loans under the Senior Credit Agreement is below $200.0 million, then the security interest will automatically terminate. The right to foreclose on the collateral is limited to specific fundamental events of default under the Senior Credit Agreement, including payment defaults and defaults arising from bankruptcy related actions.
On May 19, 2023, the Company entered into Amendment No. 11 to the Senior Credit Agreement whereby the Senior Lenders agreed to increase the Tranche C Commitments from $40.0 million to $47.0 million. On June 21, 2023, the Company entered into Amendment No. 12 to the Senior Credit Agreement which provided for a $7.0 million increase in availability to Tranche C for a total commitment of $54.0 million.
On July 5, 2023, the Company entered into Amendment No. 13 to the Senior Credit Agreement that provides for, among other things, a new $110.0 million Tranche D term loan facility, which may be increased up to $140.0 million upon the consent of the Required Lenders (as defined within Amendment No. 13). As of the effective date of Amendment No. 13, $36.0 million of loans were committed, including $7.0 million of new funding and $29.0 million converted from Tranche C. As of December 31, 2023, we have borrowed $523.4 million under the Senior Credit Agreement, including $103.8 million of Tranche D.
Amendment No. 13 also amended (i) the Tranche A and Tranche B prepayment schedule to provide for a prepayment premium of 1.4x of the total amount of such loans being prepaid, (ii) the payment schedule for the Tranche A, Tranche B and Tranche C loans such that the applicable prepayment premium would be payable through the maturity date of those loans, and (iii) the Tranche C prepayment schedule to provide for an aggregate prepayment premium (comprised of the Tranche C priority premium and Subordinated Premium) of 2.0x of the total amount of loans being repaid. All principal, interest or other amounts paid in cash upon payment of the loans will count towards the prepayment premiums for each of the Tranche A, Tranche B, Tranche C and Tranche D loans. In addition, Amendment No. 13 extends the outside date for which the Company is required to complete a $10.0 million capital raise by July 31, 2023, which was subsequently extended to April 30, 2024, and also provides that the outside date for completing a second $170.0 million capital raise is July 5, 2024. (See Note K - Commitments and Contingencies for further information) Amendment No. 13 also extends the deadlines for implementing certain governance and management related matters until April 30, 2024. Pursuant to Waiver No. 8, the lenders agreed to waive certain Defaults and Events of Default (each as defined under the Senior Credit Agreement), if any, arising prior to, or based on events or circumstances existing prior to, the effective date of Amendment No. 13. In connection with Amendment No. 13 and the conversion of Tranche C term loans to Tranche D term loans, certain outstanding warrants that were previously issued to the lenders were canceled and reissued as new warrants to
purchase up to 10,875,000 shares of GCEH’s common stock, exercisable until December 23, 2028 at an exercise price of $0.075 per share. These GCEH Warrants also provide for other amendments necessary to reflect a reallocation amongst the lenders of outstanding warrants, as further set forth in that certain amendment agreement, dated as of July 5, 2023, by and among GCEH and the lenders party thereto with the terms of the warrants remaining unchanged. GCEH has agreed to register the resale of the shares of common stock underlying the GCEH Warrants pursuant to an amendment to that certain registration rights agreement, dated July 5, 2023, by and among the Company and the lenders party thereto.
As of April 9, 2024, the Company entered into Amendment No. 14 to the Senior Credit Agreement that provided for, an increase to the Tranche D loan facility up to $165.0 million, providing $25.0 million of new funding. As of April 16, 2024, we have borrowed a total of $575.6 million under the Senior Credit Agreement, including $156.0 million of Tranche D. Consequently, as of April 16, 2024, the Company is operating with $9.0 million of borrowing capacity under the Senior Credit Agreement. While our Senior Lenders continue approving and funding draw requests on an as-submitted basis and there are ongoing discussions with the Senior Lenders concerning increasing borrowing capacity under the Senior Credit Agreement, there can be no assurance that such future draw requests will be successful. The availability period for which the Tranche D facility can be drawn may be extended from time to time by the Administrative Agent is currently extended until April 30, 2024.
Preferred Stock
On February 23, 2022, we issued 145,000 shares of our newly created Series C Preferred Stock (the “Series C Preferred”) and five-year warrants (the “GCEH Warrants”) to purchase up to an aggregate of 18,547,731 shares of our common stock (5,017,008 issued to settle the Warrant Commitment Liability) at an exercise price of $2.25 per share to ExxonMobil Renewables LLC (“ExxonMobil Renewables”), an affiliate of ExxonMobil, and 11 other institutional investors (all of whom are Senior Lenders under our existing Senior Credit Agreement) for an aggregate purchase price of $145.0 million and the settlement of the Warrant Commitment Liability. As additional consideration for ExxonMobil’s investment, we also granted ExxonMobil Renewables additional warrants (the “GCEH Tranche II Warrants”) to purchase up to 6.5 million shares of common stock at an exercise price per share of $3.75 until February 22, 2028, and a warrant to acquire 33% (19,701,493 shares) of our SusOils subsidiary for an exercise price of $1.675 per share until February 27, 2027 (“SusOil Warrant”). On August 5, 2022, the GCEH Tranche II Warrants were amended to an exercise price of $2.25 per share and the exercise period for all of the ExxonMobil warrants were extended to December 23, 2028. Each of the GCEH Warrants, GCEH Tranche II Warrants and SusOil Warrant may be exercised for cash or by means of cashless exercise, however the GCEH Tranche II Warrants cannot be exercised until the earlier of (i) the date on which ExxonMobil exercises its option to extend the Initial Term of the Offtake Agreement into the Renewal Term (as defined by the Offtake Agreement) or (ii) a change of control, sale, or the dissolution of the Company. On August 5, 2022, the SusOil Warrant was amended to an exercise price of $1.0 million ($0.0507 per share) in consideration for amendments to the Company’s Product Offtake Agreement and Term Purchase Agreement. Under the Certificate of Designations of the Series C Preferred, the holders of the Series C Preferred are entitled to receive dividends at a rate of 15%, compounded quarterly provided that, until April 16, 2024, we may elect not to pay some or all of the accrued dividends in cash, in which case the unpaid dividends shall accrue and be added to the original issuance price of the shares of Series C Preferred. The shares of Series C Preferred have no voting rights, except as required by law or with respect to certain protective provisions in the Certificate of Designations. For such time as ExxonMobil holds any shares of Series C Preferred, ExxonMobil will have the right, exercisable at its option, to appoint two directors to GCEH’s Board of Directors. If the Series C Preferred shares have not been redeemed prior to the fifth anniversary of issuance, or upon an event of default under the Certificate of Designations, ExxonMobil will have the right to appoint a majority of the Board of Directors. The Certificate of Designations provides that we will have the right, at any time, to redeem/repurchase the outstanding shares of Series C Preferred (in increments of no less than $25.0 million), for an amount equal to the Corporate Redemption Price (as defined in the Certificate of Designations) at any time the Series C Preferred is outstanding. The Certificate of Designations of the Series C Preferred Stock provides for mandatory redemption upon a Change of Control or Event of Default (as defined therein) and are not convertible into shares of our common stock. GCEH may redeem the Series C Preferred Stock at any time within the first two years at 1.85 times, and the next three years at 2.0 times, the amount of the investment (including any accrued unpaid dividends).
Sales Agreements
In April 2019, the Company entered into a binding Offtake Agreement pursuant to which ExxonMobil has committed to purchase 2.5 million barrels of renewable diesel annually (the “Committed Volume”) from the Facility (including the
Renewable Identification Numbers (“RINs”) allocated to such quantities of renewable diesel), and the Company has committed to sell these quantities of renewable diesel to ExxonMobil. ExxonMobil’s obligation to purchase renewable diesel will last for a period of five years following the date that the Facility commences commercial operations (“Start Date”). ExxonMobil has the option to extend the initial five-year term. Either party may terminate the POA if the Facility does not meet certain production levels by certain milestone dates following the commencement of the Facility’s operations or the Start Date has not occurred by June 30, 2023, as may be extended for events of force majeure.
In April 2021, BKRF entered into a Term Purchase Agreement (“TPA”) with ExxonMobil under which ExxonMobil has the right to purchase additional quantities of renewable diesel from our Facility, and the Company is obligated to sell such additional amounts of renewable diesel to ExxonMobil. Under the POA, ExxonMobil committed to purchase the Committed Volume from the Facility. However, the Facility is designed to produce more than the Committed Volume. Under the TPA, following the Start Date, ExxonMobil has the exclusive right to purchase all renewable diesel produced in excess of the Committed Volume that we sell to ExxonMobil under the POA. The Company also agreed to transfer title to ExxonMobil of the RINs allocated to the quantities of renewable diesel purchased under the TPA. In the event that ExxonMobil does not purchase all of the renewable diesel that it can under the TPA and, as a result, our inventory levels exceed certain specified levels, the Company can sell that extra inventory to third parties. The TPA has a five-year term. ExxonMobil has the option to extend the initial five-year term for a second five-year term if it elects to extend the POA.
In connection with the transactions contemplated by Amendment No. 9 to the Senior Credit Agreement, the Company also entered into a transaction agreement with ExxonMobil Renewables and ExxonMobil, pursuant to which, among other things, certain subsidiaries of the Company and ExxonMobil entered into amendments to the Company’s POA and TPA in order to extend the initial terms thereof to 66 months, to increase certain committed volumes under the POA from 105 million gallons per year (“MGPY”) to 135 MGPY, and to implement certain other commercial arrangements between the parties as described therein in exchange for issuing new immediately-vested warrants and modifying existing outstanding warrants (see Note I - Stock Options and Warrants).
Either party may terminate the POA if the Facility does not meet certain production levels by certain milestone dates following the commencement of the Facility’s operations. EMOC has notified the Company that it has terminated the POA, effective as of July 1, 2023, due to the failure to achieve the June 30, 2023 start date under the POA. The Company has disputed EMOC's purported termination. Termination of the POA would result in a corresponding termination of the TPA, and would also result in an event of default under the Senior Credit Agreement. The Company currently does not have any other offtake arrangements for renewable diesel and naphtha other than the Product Offtake Agreement and is actively pursuing all available options, including alternative offtake arrangements, to mitigate potential losses that could occur as a result of ExxonMobil's purported termination (See Note K - Commitments and Contingencies - Legal for further information).
Under both agreements, we retain 100% of the co-products, which include renewable propane, renewable naphtha and renewable butane.
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