Business Context and Reporting Period
This Form 8-K was filed by ArcLight Clean Transition Corp. II on December 2, 2021, regarding its definitive agreement to combine with Opal Fuels LLC. The transaction is intended to create Opal Fuels Inc., a Delaware public company organized in an Up-C structure. The filing does not provide historical operating results for Opal Fuels or ArcLight for a comparable reporting period.
Transaction and Key Financial Terms
| Item | Term |
|---|---|
| Pre-transaction equity value assigned to Opal Fuels | $1.50187 billion, less principal and accrued interest outstanding under the Ares convertible promissory note immediately after closing |
| PIPE financing | 12.5 million shares at $10.00 per share, for aggregate gross proceeds of $125 million |
| Minimum closing funding condition | At least $225 million from ArcLight’s trust account, PIPE proceeds and the specified NextEra contribution, after shareholder redemptions and transaction expenses |
| ArcLight net tangible asset condition | At least $5,000,001 immediately after closing |
| Transaction expense limit | ArcLight transaction expenses and liabilities may not exceed $30 million; the sponsor agreed to cover expenses exceeding $26 million |
| Tax receivable agreement | New Opal would generally pay eligible participants 85% of realized tax savings from specified basis increases and related tax benefits |
The filing does not provide revenue, net income, EBITDA, cash flow, margins, total debt, cash balances, or liquidity metrics for either company.
Material Changes Versus the Prior Comparable Period
- The material event is the execution of the Business Combination Agreement; no prior-period financial comparison is presented.
- ArcLight will domesticate from the Cayman Islands to Delaware and change its name to Opal Fuels Inc.
- ArcLight Class A and Class B ordinary shares and warrants will convert into securities of the combined company. Class B shares will convert one-for-one into Class A shares.
- The combined company will issue voting-only Class B and Class D common stock corresponding to Opal Units held by Opal equityholders.
- Opal equityholders will generally have the right to exchange Opal Units for cash or, at New Opal’s option, Class A or Class C common stock, subject to restrictions.
Guidance, Outlook, Risks, and Unusual Items
- Earnout targets: Opal HoldCo, Ares and Hillman may receive an aggregate of 5 million additional shares and corresponding Opal Units if 2023 annual EBITDA exceeds $238 million, and another 5 million if 2024 annual EBITDA exceeds $446 million. If the 2023 target is missed but the 2024 target is achieved, both tranches would be issued.
- Expected closing: The parties expected the transaction to close in the latter part of the first half of 2022, subject to shareholder approval, an effective Form S-4 registration statement, Nasdaq approval, minimum funding, redemption levels and other customary conditions.
- Termination: Either party may generally terminate for specified uncured breaches, failure to obtain required shareholder approvals, or failure to close by August 29, 2022, subject to exceptions.
- Financing and dilution: The PIPE is contingent on substantially concurrent closing. Public shareholder redemptions could reduce available cash and affect the transaction’s funding condition.
- Business risks: The filing identifies risks involving competition, growth execution, employee retention, regulatory approvals, litigation, COVID-19 impacts, renewable natural gas markets, landfill and livestock-site relationships, renewable project development, RNG fueling stations, environmental attributes and low-carbon fuel credits.
- Governance and transfer restrictions: The post-closing board is expected to have seven directors, six designated by Opal and one by the ArcLight sponsor. Certain holders would be subject to transfer restrictions of up to 180 days, with exceptions.
- Unregistered securities: Shares issued in the PIPE and to Opal equityholders are intended to be issued under the Section 4(a)(2) exemption and were not registered under the Securities Act at the time of filing.
Important Facts for Investors to Verify
- Review the definitive Form S-4, proxy statement and related SEC filings for complete transaction terms, financial statements and risk factors.
- Verify the amount remaining in ArcLight’s trust account, actual shareholder redemptions, transaction expenses and the amount of any NextEra contribution.
- Confirm whether the $225 million minimum funding condition and the $5,000,001 net tangible asset condition are satisfied at closing.
- Assess the dilution from the $125 million PIPE, converted sponsor shares, Opal Units, exchange rights and potential earnout shares.
- Review the Ares convertible note balance, the tax receivable agreement obligations and the projected cash impact of future tax-sharing payments.
- Verify whether the transaction closed, was amended or terminated, and compare actual results with the 2023 and 2024 EBITDA earnout thresholds.