LIQUIDITY |
3 Months Ended |
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Mar. 31, 2024 | |
| Notes to Financial Statements | |
| LIQUIDITY |
NOTE 2 - LIQUIDITY
The accompanying condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern. As shown in the accompanying condensed consolidated financial statements, the Company has incurred a net loss applicable to its common stockholders of $28.0 million during the three months ended March 31, 2024, and had an accumulated deficit of $289.6 million at March 31, 2024. At March 31, 2024, the Company had negative working capital of $306.7 million and a stockholders’ deficit of $163.2 million. The conversion project at our Facility is still ongoing, and we do not expect to generate any revenue from our Facility until the commencement of commercial operations.
Various scheduling issues experienced to date with CTCI Americas, Inc., a Texas corporation (“CTCI”), and other factors beyond our control have delayed the completion of the project. We have taken steps for CTCI, to accelerate the completion of the project, including the hiring of a third-party project management services group, 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. While we have commenced pre-commissioning, commissioning and other start-up activities at our Facility, our conversion project is still ongoing, and we do not expect to generate any revenue from our Facility until it commences commercial operations. We believe, based on the schedule provided to us by CTCI, and current work effort, we will commence the start-up phase of the conversion project in June 2024. Assuming the start-up phase of the conversion project is completed during this time period, we believe initial commercial operations at the Facility could commence during the third quarter of this year, although there can be no assurance that such operations will commence within this time period. 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. As of March 31, 2024, the amount of the EPC deferred payment totaled $651.2 million. The EPC deferred payment includes the contingent liability of $418.3 million, which includes contingent accrued interest of $18.3 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 12 - 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 would result in an Event of Default under our secured term loan agreement (the “Senior Credit Agreement”) (See Note 12 - 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 March 31, 2024, the Company’s primary source of liquidity is cash on hand and available borrowings under its Senior Credit Agreement. Through subsequent amendments, the Senior Credit Agreement borrowing capacity has been increased up to $599.6 million, by increasing the Tranche D loan facility up to $180.0 million, providing and additional $40.0 million of new funding (See Note 13 - Subsequent Events for further information). As of May 15, 2024, the Company is operating with $9.2 million of uncommitted 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 May 31, 2024 and an additional $170.0 million by July 5, 2024 to refinance a portion of the senior debt, and will require $142.0 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 March 31, 2024, $230.2 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 $94.7 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 May 15, 2025. In addition, we have a fixed payment obligation of $30.8 million, as subsequently amended in January 2024, that any unpaid remaining balance is due to be paid in full by December 2024 (see Note 6 - Debt for further details).
The Company estimates that it will require the following cash inflows for the following purposes through May 15, 2025:
•$48 million to fund the completion of the Bakersfield Renewable Fuels Facility and for other operational requirements, net of cash on hand, and
•$25 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
12 - 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 (excluding contingent amounts) and deferred payment to the project management service provider totaled $229.7 million and $9.8 million, respectively, as of March 31, 2024.
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 financial statements are issued. The accompanying condensed 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, an indirect, wholly-owned subsidiary of GCEH, is the primary borrower under our $584.6 million Senior Credit Agreement as of March 31, 2024. The purpose of this facility is to provide cash to BKRF to facilitate the construction of the Facility.
As of May 15, 2024, we have borrowed a total of $590.5 million under the Senior Credit Agreement, including $170.9 million of Tranche D. Consequently, as of May 15, 2024, the Company is operating with $9.2 million of uncommitted 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 May 31, 2024.
Sales Agreements
Our primary offtake arrangement for our renewable diesel produced at the Bakersfield Renewable Fuels Facility is the POA with Exxon. Exxon purportedly terminated the POA on May 19, 2023. While we have reserved and will enforce all of our rights under the POA, including without limitation those rights that automatically extend the Start Date, the termination of the POA would result in termination of our Term Purchase Agreement (“TPA”) with Exxon. If the termination of the POA and resultant termination of the TPA are effective, then the Company will need to enter into alternative offtake arrangements with third parties (See Note 12 - Commitments and Contingencies - Legal for further information).
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