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By Robert Rapier on Nov 7, 2014 with 11 responses

KiOR in Default on Loan

Update Sunday 9:30 PM PST: KiOR announced Chapter 11 bankruptcy this evening. The press release says that the company has “accepted a bid for substantially all of its assets from certain affiliates of Vinod Khosla” and that they have entered an agreement with one of Vinod Khosla’s organizations for debtor-in-possession (“DIP”) financing. The press release also notes “Common stock investors should note that effective November 6, 2014, the Company has been delisted from trading on the NASDAQ stock exchange and that other creditors have priority over shareholders under the provisions of the U.S. Bankruptcy Code. The Company does not anticipate any recovery for existing KiOR common shareholders as part of these proceedings.” KiOR’s bankruptcy this year was Prediction 5 on my my 2014 Energy Predictions made in January.

Update Friday 4:30 PM PST: This afternoon KiOR filed a Form 8-K with the SEC. This form is used to notify investors of important material events. In the report, KiOR indicated that they had received a Notice of Default and Acceleration from the Mississippi Development Authority (MDA) notifying KiOR that all obligations are now due and payable within three (3) business days from November 3, 2014. This default accelerates KiOR’s other loan obligations. In addition to the $78.6 million now payable to the MDA, KiOR says this default “accelerates the Company’s obligations under the following debt agreements:”

  • Loan and Security Agreement, dated January 26, 2012, among the Company and each of 1538731 Alberta Ltd. as agent and lender, 1538716 Alberta Ltd. and KFT Trust, as amended on March 17, 2013, October 21, 2013 and March 31, 2014. As of November 3, 2014, an aggregate amount of approximately $127.8 million is immediately due and payable. As a result of the MDA Notice, the loan accrues an additional four percent (4%) per annum default interest rate.
  • Senior Secured Convertible Promissory Note Purchase Agreement, dated October 18, 2013, among the Company, KiOR Columbus, KV III, KFT Trust and VNK Management, LLC and KV III in its capacity as agent, as amended on October 20, 2013 and on March 31, 2014. As of November 3, 2014, an aggregate amount of approximately $95.7 million is immediately due and payable.
  • Senior Secured Convertible Promissory Note Purchase Agreement, dated March 31, 2014, as amended on July 3, 2014, among the Company, KiOR Columbus and KFT Trust and KFT Trust in its capacity as agent. As of November 3, 2014, an aggregate amount of approximately $10.4 million is immediately due and payable.

So KiOR now owes, immediately due and payable, over $312 million. On the plus side, the 8-K notes “KFT Trust made a Protective Advance to KiOR in the aggregate principal amount of $1,102,691.” That is such a specific amount that I wonder if that might be the bill from the investment bank that has been shopping KiOR during the forbearance period.

My guess is that this now triggers a bankruptcy declaration next week.

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During the administration of former Republican Governor Haley Barbour, the state of Mississippi provided a $75 million no-interest loan to advanced biofuel company KiOR (OTCMKTS: KIOR) to build a plant in that state. Last Friday KiOR was supposed to make a $1.875 million payment on the loan. The loan payment had been due at the end of June, but KiOR paid $250,000 for a 120-day reprieve to give them more time to explore options on selling or merging the company, which has had its plant in Mississippi idled all year. The loan originated with the Mississippi Development Authority (MDA), and they confirmed for me this morning that KiOR missed the October 31st deadline, and a three-day grace period on the loan had ended on Wednesday, November 5th with no payment. I spoke with the MDA this morning, and afterward they sent me the following written statement:

“As of today (November 7, 2014), KiOR has not made its loan payment. MDA is working closely with its counsel and financial advisors to evaluate all options with the intent of finding the best solutions for the state in regard to the KiOR Columbus project. MDA continues to assess any and all rights and remedies it has available and will provide updates once next steps are fully determined.” -Marlo Dorsey, Chief Marketing Officer, Mississippi Development Authority

So what does this mean? It means that KiOR is now in default on the loan, and the MDA can legally seize the plant and demand the remaining balance of $69.4 million on the loan. This would allow KiOR’s other lenders to demand immediate payment of the $250 million it owes them. KiOR acknowledged in their most recent Quarterly Report to the Securities and Exchange Commission (SEC) that this action would likely force the company to declare bankruptcy:

In the event of an acceleration of amounts due under its debt instruments as a result of an event of default, the Company will not have sufficient funds and does not expect to be able to arrange for additional financing to repay its indebtedness or to make any accelerated payments, and the lenders could seek to enforce their security interests in the collateral securing such indebtedness, in which case the Company will likely be forced to voluntarily seek protection under the U.S. Bankruptcy Code.

Where does this leave the state of Mississippi? The ball is in their court, but the state is in a difficult position. Their best option was for the company to find a buyer so the loan from the state could be repaid. But KiOR presently owes $250 million, lists assets of only $58 million (and $50 million of that is for the plant that isn’t running), and a market capitalization of under $5 million. It is also facing another $1.875 million payment at the end of next month. It is not surprising that in that financial condition the company didn’t find a buyer during their 120-day forbearance. But if the state exercises their right to seize the plant, they are then in the position of trying to find a buyer or of selling the plant for scrap value (which will be less than $50 million).

The most recent precedent for this type of outcome is in the Range Fuels bankruptcy. Following more than $160 million in venture capital, a $76 million grant from the U.S. Department of Energy, a $6.25 million grant from Georgia, and an $80 million loan guarantee from the U.S. Department of Agriculture, Range Fuels was still unable to produce transportation fuel. They were forced to declare bankruptcy, and the plant was auctioned off to pay for part of its debts. The plant ultimately sold at auction for $5.1 million.

By defaulting and failing to negotiate additional time with the state of Mississippi — and allowing themselves to be delisted from the NASDAQ without a fight — it appears that KiOR is resigned to its fate. That fate presently lies in the hands of the state of Mississippi, which will seek the best possible outcome for taxpayers while trying to manage the political fallout which is sure to come.

What do I believe will happen? I still think bankruptcy is the most likely outcome given the company’s relative debts and assets, and considering that the plant hasn’t run all year and most of the employees have been let go. At this point they appear to have given up stalling for more time, and they would need to be extremely creative to craft a scenario in which they manage to avoid bankruptcy. Their only hope at this point is with the MDA deciding that forcing them into bankruptcy isn’t the best scenario for Mississippi taxpayers.

Link to Original Article: KiOR in Default on Loan

By Robert Rapier. You can find me on TwitterLinkedIn, or Facebook.

  1. By Forrest on November 7, 2014 at 5:32 pm

    It does sound like the whole shebang was a study in hype, promises, hope, and incompetence. It was fun for awhile as folks who would never be trusted in real open market business were suddenly making speeches, gaining attention of political leadership, and making outrageous claims to titillate the hope and change crowd of new beginnings. Yes we can, turned into NO we can’t. The investors rather foolishly mistook the campaign slogan as a benchmark of competence, as the key to brighter future. They seen many a movie on evil oil drillers filling their pocket per public resources. They swallowed the Chavez solution of together we can destroy the rich and pocket the difference. Problem was and is when that happens the productive crowd walks away and the losers are left behind pointing fingers at each other. It happened in Michigan as well. Presidential hopeful Governor Janet Granholm was elected two terms per her beauty and acting credentials. Citizens thought she would be as popular as Regan only with modern ideas. She had Obama’s back and together they blamed Bush for the first 6 years. Slowly and painfully Michiganders realized the lady was clueless, only full of slogans. We suffered a depression while the rest had a recession. Here a bit on one of her grandiose ideas.

    “LG Chem Michigan, which received a $150-million federal grant in 2009
    and more than $175 million in state and local tax relief, has not sold
    any battery cells to automakers, but has paid more than $1.6 million to
    workers who volunteered for animal shelters and charitable groups and
    watched movies and played video games or cards, according to a report an inspector general for the U.S. Department of Energy released today.”

    They were going to run China out of the battery business and the battery car would quickly become standard garage fare. The Governor actually claimed we are suffering because of the automotive business and this business sector should not be encouraged to exploit their Union workforce for money (she’s from Canada).

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  2. By Forrest on November 8, 2014 at 7:14 am

    The business leadership probably attributes the failure to low cost oil. That they had counted on crude oil to maintain price trajectory and today we should be paying $5/gal gasoline. Also, I think they reviewed the alternative fuel processes and conclude to abandon ship before they would run out of excuses, other peoples money, and actually preform in real world evaluations. It was a fun ride prior to that and one where much attention and hype promoted to their shoulders. You can do back of the napkin calculations to convince novice leadership, journalist, and hope and change electorate. But, when hard core business meets hard core industrial efficiencies not a pleasant sight. I do think much talented professionals should be called in to pilot stage before granting business plan large federal resources. I do think they had good technology, but much invention needed to slowly pull the process to success. Meaning they should have been in low volume pilot stage even today. They got pushed into production per political pressure to make promises happen. Government empowers and destroys and do so upon their political timetable.

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  3. By TimC on November 8, 2014 at 11:13 am

    Come on, the Green Revolution will never happen if we focus on the negative like this. Look on the bright side: KiOR shares closed at $0.0742 yesterday, down 99.5% from their post-IPO price. This is clearly a wonderful buying opportunity for a cleantech company with a can’t-miss technology that has no downside. Where else can you get a green investment bargain like KiOR? Gevo, for example, is only down 98% from their IPO price, and Solazyme is only down 82%. So think positive and make a difference by buying some KiOR shares on Monday morning. How can you lose?

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    • By Russ Finley on November 8, 2014 at 5:03 pm

      …I just love good sarcasm. ; )

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    • By TimC on November 13, 2014 at 4:11 pm

      Update: today KiOR is down 94% from 5 days ago, at $0.007. Compare that to Exxon (XOM) at $94.50, meaning you can buy 13,500 shares of KiOR for every share of XOM. Since it’s common knowledge that fossil fuels are history and the age of renewables is here, anyone who does not sell their XOM and buy KiOR immediately must have rocks in their heads. But don’t put your whole retirement portfolio in KiOR, keep some powder dry for Cool Planet’s IPO. Diversification is the key to sound investing.

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  4. By Optimist on November 10, 2014 at 9:42 pm

    “The press release says that the company has “accepted a bid for substantially all of its assets from certain affiliates of Vinod Khosla”
    So, did Khosla win or lose? Let’s add them up:
    Loses: All the money he directly invested.
    Wins: Uncle Sam’s generous “investments”, Ditto from the state of Mississippi, IPO and the plant bought for pennies on the dollar (great buy IF you can find a use for it…).

    RR, you have the associated amounts for all of the above?

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    • By Robert Rapier on November 10, 2014 at 9:48 pm

      I saw that the money they had spent to date was something like $650 million. If you recall, Khosla bought the Range Fuels assets for pennies on the dollar and now they belong to his LanzaTech venture. I think he is angling to do the same here.

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      • By Optimist on November 11, 2014 at 1:24 pm

        Sounds like you owe the man an apology: when he spoke about bringing Silicon Valley innovation to the energy business he was talking finance and profits. Who cares about renewable fuels?

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  5. By Khosla's Holiday Delivery Co on November 11, 2014 at 1:26 pm

    Robert,

    Vinod called. He said you’re off the holiday fruitcake list.

    Sorry…

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    • By Tom G. on November 11, 2014 at 5:18 pm

      Now this posting is really funny. Oh wait, maybe Robert really does like fruitcake. No on second thought, I would guess he doesn’t. Most of the people who run for exercise wouldn’t consider eating the stuff. Of course you can always send it to me, LOL

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  6. By TimC on November 11, 2014 at 2:10 pm

    It’s informative to see how little KiOR’s bankruptcy matters to anyone. Just a few years ago KiOR was widely considered to be the very best hope we had to get off fossil fuels. Now, most of the media is not even paying attention, and those that are can’t even be bothered to get the facts straight. A news site called 24/7 Wall Street has the headline: “Ethanol Maker KiOR Files for Bankruptcy.”

    http://247wallst.com/energy-business/2014/11/10/ethanol-maker-kior-files-for-bankruptcy/

    Maybe this is a good thing, if it means the public has finally accepted that cellulosic biofuels are an irrelevant political stunt, and another biorefinery bankruptcy is just business as usual, not worth noticing. In a few years some politicians might even be ready to start talking openly about the real energy choices that we will soon have to make. But probably not.

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