Business context and reporting period
This is ArcLight Clean Transition Corp. II’s 2021 Form 10-K, not an operating-company 10-K reporting OPAL Fuels’ business results. ArcLight was a SPAC formed to complete a business combination and had no operating business or operating revenue through December 31, 2021. Its financial statements cover January 13, 2021 (inception) through December 31, 2021; a comparable prior-year period is not provided.
On December 2, 2021, ArcLight agreed to combine with OPAL Fuels LLC. The transaction was pending at the filing date, with closing expected in the second half of 2022 after shareholder approval and satisfaction of customary conditions.
Financial results, cash flow and liquidity
| Metric | Reported amount or detail |
|---|---|
| Revenue | No operating revenue; ArcLight had not commenced operations. |
| Net loss | $16.2 million, or $0.49 per ordinary share, for the inception-to-year-end period. |
| Expenses and non-operating items | General and administrative expenses were $4.9 million. A $10.8 million increase in warrant-liability fair value and $0.5 million of warrant-related financing costs contributed to the loss; trust investments generated a $12,421 gain. |
| Cash flow | Operating activities used $1.9 million. Investing activities used $311.2 million, primarily cash placed in the trust. Financing activities provided $313.9 million. |
| Cash and liquidity | At December 31, cash outside the trust was $811,526, current assets were $1.5 million, and working capital was approximately $1.4 million. Trust investments totaled $311.2 million. |
| Liabilities and debt | Total liabilities were $40.8 million, including $25.8 million of derivative warrant liabilities, $10.9 million of deferred underwriting commissions and $4.0 million of deferred legal fees. Current liabilities were $113,261. No long-term debt was reported; no working-capital loans were outstanding. |
| Equity and margins | Shareholders’ deficit was $39.1 million. Operating margins are not meaningful because the SPAC had no operating revenue. |
Material changes and proposed transaction
- ArcLight completed its IPO on March 25, 2021, issuing 31.1 million units at $10 each for approximately $311.2 million gross proceeds. It also raised approximately $9.2 million from sponsor warrants.
- The proposed OPAL Fuels combination valued OPAL Fuels at a pre-transaction equity value of $1.502 billion, reduced by principal and accrued interest on an Ares convertible note; the filing text does not provide a clear note balance in this disclosure.
- A $125 million PIPE was agreed at $10 per share, contingent on the combination closing. A key closing condition required aggregate transaction proceeds of at least $225 million.
- The agreement included potential earnout issuances of 5 million shares and corresponding OPAL units for each of two EBITDA thresholds: annual EBITDA above $238 million for 2023 and above $446 million for 2024. If the first threshold is missed but the second is met, both tranches may be issued.
- The contemplated post-combination structure was an “Up-C,” with OPAL Fuels and its subsidiaries holding substantially all operating assets and New OPAL serving as the public holding company.
Outlook, risks and unusual items
- Management believed available working capital, together with potential sponsor or affiliate borrowing, would be sufficient through the earlier of a business combination or one year from the filing. Such support was not committed.
- If no business combination is completed by March 25, 2023, ArcLight generally must wind up and redeem public shares from the trust, subject to creditor claims and applicable law. Public warrants would expire worthless. The estimated redemption value was approximately $10 per public share, but could be lower.
- Trust funds could be reduced by creditor claims; the sponsor’s indemnity is limited and the filing says its ability to satisfy it was not verified. High shareholder redemptions could also jeopardize transaction cash requirements or require additional financing.
- ArcLight reported ineffective disclosure controls at year-end due to a material weakness in accounting for complex share and warrant features. The weakness led to restatements of the March 2021 balance sheet and first- and second-quarter 2021 interim statements. Management said it was devoting resources to remediation.
- A purported shareholder sent a February 14, 2022 demand letter alleging material omissions in the OPAL transaction’s Form S-4. ArcLight denied the allegations and said it believed the claim was without merit; additional letters could follow.
- Other material SPAC risks include transaction conditions and execution, conflicts of interest, dilution, warrant-liability volatility, potential Nasdaq listing requirements, COVID-19 and market-financing uncertainty, and the absence of an operating track record.
Investor verification points
- Confirm that this filing reports ArcLight SPAC results only; OPAL Fuels operating revenue, profitability, cash flow, debt and margins are not reported here.
- Check subsequent filings for whether the business combination closed, actual shareholder redemptions, PIPE proceeds received and cash available at closing.
- Review OPAL Fuels’ audited financial statements and the final transaction valuation, Ares note balance, debt and any updated forecasts.
- Verify the final earnout terms and the EBITDA definitions, adjustments and measurement conditions.
- Review subsequent disclosure-control remediation and any developments concerning the S-4 demand letter or related litigation.