<<NON RECOURSE FINANCING ????>>
Robert, I disagree with your post regarding this type of financing, so I'll respond to what you said with interspersed comments.
<< In my conversations with both Rene and Lyle in IR. I was assured that the financing should be completed by the end of March "95% complete" "just need to complete the final paper work". It is now April 8th. Again the integrity of the CEO should be brought into question.>>
I don't agree on this issue. The closing of a non-recourse project financing is a complicated and time-consuming affair over which TT and the new subsidiary company that is formed to build, own and operate the plant have little control. The myriad external permitting agencies (dens of bureaucracies) and the lenders control the time frame. It's the nature of the business that deadlines are missed. Delays are the norm.
<< I don't accept this from my staff or management never mind the CEO. I also believe their are others posting here that are serious TT supporters who have been told the same. If not please post when it was you were told it was to be completed for the benefit of all those who read this thread. >>
Robert, I am convinced from your posts that you are paranoid.<g> From your definition (below) of non-recourse financing, it's obvious that you don't understand it. From other postings and private messages that I have received warning me away from this stock and from some of the reasons given, it becomes clear to me that few if any really understand this whole issue. So in the interests of clarification, I'll cover the most pertinent aspects. In my comments I'll refer to Thermo Tech Technologies as TT and to the company that is formed by TT , either wholly owned or in joint venture (JV) i.e. the 'Newco Bio Conversion Inc.' as just Newco.
Preceding financial closing will be the feasibility study. The key deliverable will be what's called a bankable feasibility report. This is the basis of the go no-go. Financial closing will involve many parties, and it certainly will involve many agreements and contracts. Typically there will be equity financing as well, for rates of return and a schedule of return of equity (dividends) that will have to be agreed on. The financial model will have to demonstrate a debt coverage ratio that will vary from lender to lender and situation to situation. What this means is that the revenues generated from the tipping fees and the sales of the animal feed and fertilizer additive (and now also, the enzymes to Thermo Agri-Products?) will have to exceed the costs of operations, taxes, etc. by a factor of, say 30 - 40% (if not more) to give comfort to the lender that his debt will be serviced. It's a bit like the lender enforcing a contingency on the debtor company. All in all, this is a process which, in my experience, always takes longer than planned. For this reason, any schedule dates for projects issued by IR should be taken as a target, rather than cast in stone, until they can confirm that the financing has closed.
<< After a good look at the 6k report as well as taking into account my own experience what Rene told me, the Pension Fund that was named I am convinced that this type of financing is not the type that Niagara Bio and Oshawa Bio would be eligible for. The Fund would at least secure the plants and the license for the Technology and the right to continue to operate the plants. According to Rene the licenses go back to TT if the company defaults. Yes this would be great for T but it's just to good to be true.>>
I don't understand what you're getting at here. In the case of default, the Fund (or whoever the senior lender is) would not have a right to the license for the Technology. They would have the right to take over the assets to either try to sell them or to hire another firm of their choice to operate the plant. Their only interest will be to get the debt serviced. The fact that the financing is non-recourse, prevents the senior lender from 'reaching through' Newco to get at TT. (However, the lenders will probably want to be assured that if they take over the assets, there is still a committed operator to operate the facility - that may involve some control over the license -i.e., that TT can't forego the licensing agreement with Newco, for instance).
<< I have not read a single post questioning the Non recourse financing claimed by Rene in the 6k. This puzzles me. I am sure that their are those reading this thread that are very familiar with this type of financing.
For those of you who are not familiar with Non recourse it is quite simple.
Example:
You go to the bank and ask for a $1,000,000 loan. Based on your solid history and incredible net asset worth the bank gives you the money. >>
LOL! TT won't get far that way! There ain't much in the way of solid history and incredible net asset worth yet.....but, IMO, it's coming.<g>.
The debt financing is not sought by TT but rather by Newco (the company that is formed to build and operate the facility). The loan is granted based on the put-or-pay contracts for the waste materials feedstock (tipping fees) and the sales (take-or-pay) contracts for the end products. In addition, the lender will have a right to take over the facility under default. It is the guaranteed cash flows from the facility that are provided by the put-or-pay and take-or-pay contracts that make this investment attractive for Pension Funds, Banks or Insurance Companies. This type of financing can generate reasonable secured returns to the lender, of 'Canada bond yield for the term of the financing + maybe 1-2% - Canada bond being considered no risk. Very attractive for these types of lenders. There is a lot of money available to chase these type of low risk returns.
<<If you are to default, even as soon as the first payment the bank has no legal (recourse) way or right to come after you for the balance of the unpaid debt. It means they can not even claim ownership of what you spent the money on. They can only give you a bad credit rating on the credit bureau. >>
Not accurate. From the lender's point of view, the biggest risk of default is during the construction period. If the plant doesn't get built his debt will never get serviced. The contracts with the lender will require performance bonds and material and labour payments bonds as well as comprehensive builders all-risk insurance coverages among others. There will also likely be some form of penalties applicable if the plant is not commissioned and put into operation in time since this will delay the debt service schedule laid down in the financial closing agreements. If default occurs, then the lender will call the bonds and be able to take over and have the construction completed under his control. If default were to occur during operations, for whatever reason(s), then the lender will have the right to take over the facility and the operations of the plant and do whatever he deems necessary to get his debt serviced. Investors in Newco will probably lose their equity investment, but that would be the extent of their risk.
<< I do not know about all of you that post here but $32,000,000 is a lot of money to lend out with no security, even for TT and it doesn't have a perfect history in paying its creditors. >>
As you can see, TT only has to 'lay out' their portion of the equity investment in the project. In cases where they have negotiated 100% non-recourse financing, they will not need to provide any equity. In the case of Ontario Thermo Tech, where they are in a 50-50 JV, they would need to fund 50% of the equity contribution. If the debt financing were for 75% of the capital cost, then they would need to fund one half of 25% or 12.5% - $1.875M for a 600 TPD plant. (In the conference call, I believe Ren‚ mentioned that TT had access to a $36M line of credit to cover these types of investments). They would inject this equity over the construction period in proportion to the drawdown on the debt, (or maybe upfront, depending on what the lenders require).
<< Any and all responses are welcome, even from those who don't want to consider all possibilities. >>
.
<< Robert Pool
Perhaps an overly discriminating investor. >>
Perhaps, but there is no such thing as a stupid question when one's money is at stake<g>.
To conclude, the bottom line here is that they have finally developed 'cookie cutter' plants for 400tpd and 600tpd 3rd generation TMPs. They have engaged a top level project management firm, Stothert Engineering, to manage the construction of each and every TMP, no matter where it's built. This, along with a successful track record (which is still to be established), gives the lender confidence, (this is very, very important), that the plant will be built on schedule, within budget, to TT's quality standards. Therefore, It's unlikely that there will be default during construction, except for circumstances contractually beyond their control.
They have worked out the process kinks in Hamilton and have validated that the financial returns exceed their financial model. Go to their Internet site and look at the Hudson Sloane & Co. Research Report. Therein you will see that the IRR (internal rate of return on equity) of a TMP is 204% for a 600tpd 3rd generation TMP of capital cost $15M with a 15 year life and with 75% debt financing. By August of 1998, the Richmond plant will be the 'proof of the pudding' and the basis of the building of their 'track record'. Something to watch.
Further, no project is started without a bankable feasibility study that ensures that non-recourse debt will be secured for a minimum of 75% of the capital cost - that debt will only become available with the guarantees related to the put-or-pay and take-or-pay contracts. The market is huge. It is driven in part by government environmental imperatives. The market is starting to chase after them - they are arranging some projects at 100% debt financing (non-recourse).
Sounds pretty promising to me.<g> For Clement, Zeev, David and others, this is all IMO.
Casey |
