Another Green Bond Debacle

CALIFORNIA POLLUTION CONTROL FIN AUTH

CALPLANT I PROJECT

This huge $228 million 7% to 8% green bond issue was for the construction of a composite panel manufacturing plant located in the rice producing area of California. It uses rice straw residue to manufacture wood panels for construction, flooring, furniture and decorative hardwood plywood. Its green moniker is due to the fact that such straw residue is presently being burned. The company has a patent on the technology to do this conversion, but this patent expired 12/29/21 or six months after the projects start-up date.

Signs of trouble began with an announced draw of $7.8 million on the reserve fund to make the January 2, 2020 interest payment. This was followed by a series of “Notice to investors of conditional requisition Document” starting March 17 with new requisitions being filed every week from there on. In each case, these were requests for more funds. No clarification was given as to what these fund draws portended, other than that these bonds dropped in price from 108 to 53 between December 2019 and April 2020 on significant volume.

On October 5, 2021, the Borrower voluntarily filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware. It looks like this project did not became operational until June 2021, but the project could not see a quick path to profitability and chose to file bankruptcy that October. The plant is operational now with 130 employees, but the January 2022 financials show sales of only $871,475 on cost of goods of $3, 168,912 and non-operating expenses of $5,332,067 for a monthly loss of $(7,629,504) and a loss since start-up of $(44,385,279). It looks like this project is not yet in a position to even propose a settlement plan. The bonds last traded at 10 on December 23, 2021 and have traded as low as 2.5 for $1.3 million. Looks like another huge green debacle. CUSIP 130536RA5