Business Context and Reporting Period
This Form 8-K, filed on October 22, 2010, reports the completion of a merger by Green Plains Renewable Energy, Inc. (the "Company") to acquire Global Ethanol, LLC ("Global"). Upon closing, Global was renamed Green Plains Holdings II LLC ("Holdings II"). The transaction involves two operating ethanol plants in Lakota, Iowa, and Riga, Michigan, with a combined annual production capacity of approximately 157 million gallons.
Key Financial Metrics and Transaction Details
- Transaction Value: Approximately $169.2 million at execution, subject to working capital adjustments.
- Consideration: 4,386,027 shares of restricted Company common stock, warrants to purchase 700,000 shares (exercise price $14.00, 3-year term), and $20.0 million in cash.
- Debt Assumption: Approximately $98.7 million of debt assumed at the date of the Merger Agreement.
- Cash Equity Contribution: The Company contributed $10.0 million of cash equity to Holdings II, $6.0 million of which was used to reduce outstanding debt.
- Escrow: $8.5 million of the cash consideration was placed in escrow for working capital adjustments and indemnities.
- Debt Structure (Post-Amendment):
- $34.1 million amortizing term loan (Tranche A: ~$17.0M; Tranche B: ~$17.1M).
- $42.6 million revolving term loan.
- $15.0 million revolving line of credit.
- Interest Rates: Variable rates (LIBOR/Prime + spread) for most tranches; Tranche B fixed at 8.22%.
Material Changes and Covenants
The filing details the "Sixteenth Amendment" to the existing credit agreement entered into by Holdings II. Key financial covenants include:
- Working Capital: Must not be less than negative $5 million, increasing to $7.5 million by March 31, 2013.
- Net Worth: Must not be less than $70 million.
- Debt Service Coverage Ratio: Minimum 1.00 to 1.00 as of June 30, 2011, increasing to 1.25 to 1.00 by December 31, 2011.
- Distributions: Prohibited during the forbearance period ending April 30, 2013. Post-forbearance, distributions are limited to the greater of 60% of net income or amounts necessary for tax liabilities.
- Cash Flow Recapture: Commencing July 30, 2011, additional principal payments are required equal to the lesser of quarterly EBITDA or the amount by which working capital exceeds $5.0 million, up to a cumulative $4.2 million.
Outlook, Risks, and Unusual Items
The Company has entered into a Support and Subordination Agreement allowing, but not obligating, the Company to make contributions to Holdings II for liquidity or covenant default purposes. The loans are secured by all real and personal property at the Lakota and Riga plants. The filing notes that pro forma financial information is not included in this report and will be filed by January 7, 2011. Equity securities were issued to accredited investors under Section 4(2) of the Securities Act of 1933.
Investor Verification Checklist
- Verify the final purchase price after the working capital adjustment is calculated.
- Review the audited financial statements of Global Ethanol, LLC (Exhibit 99.2) for historical performance.
- Monitor the Company's ability to meet the net worth ($70 million) and debt service coverage covenants by the specified deadlines.
- Assess the impact of the $98.7 million debt assumption and the $10.0 million equity contribution on the Company's consolidated balance sheet.
- Check for the filing of pro forma financial information expected by January 7, 2011.