LIQUIDITY |
9 Months Ended |
|---|---|
Sep. 30, 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 an operating loss of $104.1 million and net income of $30.4 million during the nine months ended September 30, 2024, and had an accumulated deficit of $95.7 million at September 30, 2024. Net income included a non-cash gain on the extinguishment of debt of $163.6 million during the nine months ended September 30, 2024. At September 30, 2024, the Company had negative working capital of $805.6 million and stockholders’ equity of $13.3 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 Facility. While our Facility conversion project is still ongoing, progress has continued and as of November 14, 2024, the project has transitioned from construction to operations and the start-up phase of the conversion project has commenced. We do not expect to generate any revenue from our Facility until it commences commercial operations, which we believe will occur during the fourth quarter of this year, although there can be no assurance that such operations will commence within this time period. As of September 30, 2024, 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 September 30, 2024, the amount of the EPC deferred payment totaled $696.0 million. The EPC deferred payment includes a contingent liability of
$436.5 million, which includes contingent accrued interest of $36.5 million. An unfavorable outcome with CTCI on this dispute may materially impact our future liquidity. We will 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 13 - Commitments and Contingencies) once we achieve Substantial Completion, as defined by the CTCI EPC Agreement, as amended, which management estimates will not occur until the first quarter of 2025. As of September 30, 2024, the EPC deferred payment (excluding contingent amounts) and deferred payment to the project management service provider totaled $254.2 million and $9.2 million, respectively. Included in the EPC deferred payments above, the Company has accrued an additional $5.3 million that does not fall under the CTCI EPC Agreement, but payment is due at Substantial Completion as defined by the EPC contract. On October 21, 2024, we notified CTCI that it was in default under the CTCI EPC Agreement, and that such defaults were not capable of cure. As a result, all further work under the CTCI EPC Agreement was terminated effective as of October 21, 2024, and we exercised our right to complete all remaining work. We intend to pursue any and all remedies available to us as a result of such defaults under the CTCI EPC Agreement and enforced our right to draw down on a letter of credit provided by CTCI in support of its obligations under the CTCI EPC Agreement. We drew down on the letter of credit in the amount of approximately $17.8 million (see Note 14 - Subsequent Events).
The Company’s primary sources of liquidity is cash on hand, available borrowings under its Senior Credit Agreement and Revolving Credit Facility (“RCF”). As of September 30, 2024, our Senior Credit Agreement had a total borrowing capacity of up to $714.2 million, which may be increased by an additional $5.0 million if the Administrative Agent reasonably determines that such increase is required to reach substantial completion (as defined in the Senior Credit Agreement with respect to the Facility) (See Note 7 - Debt for further information). As of September 30, 2024, the Company had $25.0 million of committed borrowing capacity remaining under the Senior Credit Agreement. In addition, the Senior Credit Agreement provides for a number of affirmative covenants to which the Company must comply, including the following: the Company is required to raise $10.0 million by November 15, 2024 and an additional $170.0 million by November 15, 2024 to refinance a portion of the senior debt; that we maintain a debt balance of not more than $470.0 million on and after November 15, 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 November 15, 2024. As of November 14, 2024, the Company is operating with $9.7 million of committed borrowing capacity remaining under the Senior Credit Agreement and $47.5 million of borrowing capacity under the RCF, subject to the borrowing base limitations.
As of September 30, 2024, approximately $173.7 million is required for cash interest payments starting in December 2024 through November 14, 2025 related to the Senior Credit Agreement outstanding balance as of September 30, 2024. Interest related to the Senior Credit Agreement has been paid in kind through September 30, 2024, and has been extended till December 2024. As of September 30, 2024, $550.9 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 1.35x multiple on invested capital (“MOIC”) and (2) additional payment of approximately $380.9 million required to achieve the targeted debt balance of not more than $370.0 million, assuming we are successful in raising $170.0 million of additional capital by November 15, 2024.
In June 2024, the Company entered into a RCF with Vitol Americas Corp. as the lender, administrative and collateral agent (“Vitol”), providing for a $75.0 million working capital facility subject to borrowing base limitations with an advance rate of 90% against the RCF collateral primarily consisting of accounts receivable, feedstock and product inventory owned by the Facility and all Renewable Attributes, as defined in the RCF, financed under the RCF. The RCF matures 36 months from the Supply and Offtake Agreement (“SOA”) Start Date, subsequently amended (see Note 14 - Subsequent Events), which is defined as the Facility receiving feedstock and producing an average of at least 5,000 barrels per day of renewable diesel over a consecutive 5-day period (see Note 13 - Commitments and Contingencies - Supply and Offtake Agreement for further information).
On June 25, 2024, the Company entered into a Settlement and Mutual Release Agreement (“EM Settlement Agreement”) with ExxonMobil Renewables LLC (“ExxonMobil Renewables”) and ExxonMobil Oil Corporation (“EMOC”) whereby the Company and ExxonMobil Renewables agreed, among other things, to cancel all 125,000 shares of the Company’s Series C Preferred stock as of the effective date of the settlement (see Note 10 - Series C Preferred Stock). All rights granted to ExxonMobil Renewables pursuant to the terms of the Series C Preferred stock were also terminated as of the Effective Date, and ExxonMobil Renewables waived any rights to the payment of any accrued or unpaid dividends in respect thereof, which totaled $51.5 million as of the effective date of the settlement. In addition, on June 25, 2024, all outstanding shares of Series C preferred stock held by the Senior Lenders were converted into approximately $28.2 million
in Tranche B loans that included accrued or unpaid dividends in respect thereof, which totaled $8.2 million (see Note 10 - Series C Preferred Stock).
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 7 - Debt).
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 to recover liquidated damages to which the Company may be entitled from CTCI;
•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;
•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, 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.
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