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March 8, 2023 – Privately held yze Renewables II, LLC and one affiliated debtor (together “Ryze” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case No. 23-10289 (Judge Mary F. Walrath). The Debtors, who are in the middle (40% complete) of repurposing an existing biofuels refinery located in Las Vegas, Nevada (the "Refinery*"), are represented by Pauline K. Morgan of Young Conaway Stargatt & Taylor, LLP. Further Board authorized appointments include: (i) Paul, Weiss, Rifkind, Wharton & Garrison LLP as general bankruptcy counsel, (ii) Alvarez & Marsal North America, LLC to provide a CRO (Klaus Gerber) and other personnel, (iii) Guggenheim Partners, LLC as investment bankers and (iv) Stretto as claims agent.
* "Once complete, will have the capacity to produce 7,500 barrels of renewable diesel per day by converting non-edible renewable and waste feedstocks to premium low-carbon fuels. Such biofuels are one of the most sought-after methods to reduce carbon emissions."
The Debtors’ lead petition notes between one and 50 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn ($186.4mn of funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Georgia's Own Credit Union ($3.1mn "Unsecured Fees and Expenses Under Prepetition Term Loan Agreement" claim), (ii) Biodiesel of Las Vegas ($2.3mn trade claim) and (iii) Georgia's Own Credit Union ($693k "USDA Annual Loan Guarantee Fee" claim).
Petition Date Highlights
- Developer of Las Vegas, Nevada Biofuel Refinery Files for Bankruptcy with $186.4mn of Funded Debt
- Cites Failure of Duke Technologies technology (and Subsequent Switch to Topsoe’s HydroFlexTM) at 40% Completed Refinery as Leaving Refinery Critically Underfunded
- Prepetition Lenders Led by Georgia’s Own Credit Union to Provide $8.0mn of DIP Financing ($2.0mn Interim)
- Debtors to Re-Boot Sales Process In-Court
Goals of the Chapter 11 Filing
The Gerber Declaration (defined below) provides: "…the Debtors intend to initiate a comprehensive, Court-supervised marketing and sale process in accordance with Court-approved bidding procedures and subject to certain agreed-upon milestones in connection with the Debtors’ proposed DIP Financing…"
The Debtor have negotiated and reached agreement on the terms of debtor-in-possession ("DIP") financing to be provided by prepetition lender Georgia’s Own Credit Union ("GOCU") consisting of a term loan facility in an aggregate principal amount up to $8.0mn ($2.0mn interim). The DIP financing will be secured by a priming, first-priority senior lien on the collateral securing the Prepetition Term Loan Facility, together with all or substantially all other available assets.
Events Leading to the Chapter 11 Filing
In a declaration in support of first day filings (the “Gerber Declaration"), Klaus Gerber, the Debtors’ Chief Restructuring Officer, commented: “…on June 25, 2018, Ryze Las Vegas, as borrower, Ryze II, as guarantor, and Georgia’s Own Credit Union ('GOCU') entered into that certain Loan Agreement (as amended, the 'Prepetition Term Loan Agreement') to provide financing for the development of the Refinery in the aggregate principal amount of $198 million, 70% of which was guaranteed by the United States Department of Agriculture (the 'USDA'). At the time, such USDA guarantees were only available for emerging, commercially unproven technologies, which disqualified Topsoe’s HydroFlexTM technology. Accordingly, in June of 2018, MMC began construction to repurpose the Refinery using the 'Duke' technology design, which qualified for the USDA guarantee. Despite its novelty, the Duke technology had shown promise and was deployed by DuPont in a number of commercial applications utilizing petroleum feedstocks.
…in June of 2018, MMC began construction to repurpose the Refinery using the 'Duke' technology design, which qualified for the USDA guarantee. Despite its novelty, the Duke technology had shown promise and was deployed by DuPont in a number of commercial applications utilizing petroleum feedstocks.
Approximately seven months after construction of the Refinery commenced, the Debtors became aware of various engineering, mechanical, pollution, and safety issues, among others, at another refinery that used the Duke technology. In response, the Debtors’ management team commenced a technology review and assessment to evaluate various alternative technologies that could be utilized to construct the Refinery, which ultimately resulted in the Debtors’ decision in October 2019 to utilize Topsoe’s HydroFlexTM to complete the Refinery’s construction.
The Refinery’s pivot to an alternative technology source resulted in substantial delays and increased costs that vastly exceeded the Debtors’ available financing. Whereas the Refinery was initially budgeted to cost approximately $151 million to complete, the Debtors now believe that significant additional funds will be required to complete the Refinery. The Debtors have engaged the appropriate engineering professionals to independently develop a revised cost estimate to complete the Refinery….
Unfortunately, before the Debtors could launch an out-of-court sale process, the corporate governance litigation referenced above [relating to a default under the Debtors' Prepetition Term Loan Agreement*] brought the Debtors’ sale and financing efforts to a halt. The Debtors also suffered from onerous supplier contracts and a lack of cooperation from certain key contractors. The Debtors were in default under the Prepetition Term Loan Agreement and the Prepetition Agent was hesitant to provide additional financing due to the uncertainties of an out-of-court sale process. Accordingly, the Boards concluded that commencing the Chapter 11 Cases would be in the best interests of the Debtors and their various stakeholders because it would allow the Debtors to maximize value by selling their assets free and clear of claims, shed burdensome executory contracts, and stay all pending litigation."
* "Before the Debtors could enter into a third Forbearance Agreement with the Prepetition Agent, NC Industries and the Prepetition Agent each attempted to reconstitute the Debtors’ Boards by exercising equity pledges under their respective credit facilities. Litigation ensued and the Debtors’ Boards were ultimately reconstituted pursuant to a Nevada state court order. As a result, and as of the date hereof, the Board of Ryze II is comprised of two independent managers and the Board of Ryze Las Vegas is comprised of three independent managers."
As of the Petition date, the Debtors have outstanding debt obligations in the aggregate principal amount of approximately $186.4mn, consisting of approximately $180.0mn in outstanding secured debt under the Prepetition Term Loan Agreement (plus accrued and unpaid interest and fees), a separate advance (the “Advance”) by the Prepetition Agent in the amount of approximately $836k under the Prepetition Funding Agreement…and approximately $5.6mn in unsecured debt. As noted above, 70% of the Prepetition Term Loan Agreement was guaranteed by the USDA subject to the Debtors' choice of "emerging, commercially unproven technologies" in the development of the Refinery,
As reflected in the organizational chart attached below, Debtor Ryze Las Vegas is wholly-owned by Debtor Ryze II. They are both Delaware limited liability
companies. Ryze II is wholly-owned by non-Debtor Ryze Renewables Nevada, LLC (“Ryze Nevada”), which, in turn, is wholly-owned by non-Debtor Ryze Holdings. Ryze Holdings is a privately-held company with five shareholders, including (i) Daniel Brown 2018 Family Trust, (ii) RQNMK, LLC, (iii) ADK Advisors, LLC, (iv) Nemo Perrera, and (v) The Ryze Corporation.
About the Debtors
The Gerber Declaration provides: "The Debtors were formed in 2017 in connection with the planned repurposing of an existing biofuels refinery (the 'Refinery') located in Las Vegas, Nevada that, once complete, will have the capacity to produce 7,500 barrels of renewable diesel per day by converting non-edible renewable and waste feedstocks to premium low-carbon fuels. Such biofuels are one of the most sought-after methods to reduce carbon emissions.
The Refinery, once the repurposing is completed, will produce renewable fuels using Topsoe’s HydroFlexTM hydro-treating technology, which has been shown to increase yield and lower operating costs. The Refinery’s inclusion of a 'feedstock agnostic' pre-treatment plant will enable the Refinery to (x) process fats, greases, and waste agricultural oils and (y) increase business operating flexibility and margins. The production process entails six steps, including: (i) pre-treating the renewable feedstock to remove impurities; (ii) heating and pressuring the clean feedstock; (iii) dissolving hydrogen gas into the liquid feedstock; (iv) pumping the liquid feedstock over a catalyst bed while under high temperature and pressure, resulting in the chemical decomposition of the biomass, which splits into diesel, propane, and water; (v) rearranging (isomerizing) the diesel molecules to improve the cold-flow properties; and (vi) finally, producing renewable diesel with water and renewable propane as the only by-products. This process results in fuel that is 100% renewable and sustainable, is compatible with existing diesel engines, and delivers more efficiency to engines and better mileage than standard diesel due to its high cetane value (80+)."
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