Investors who originally planned on a soy diesel plant east of Marcus have been patiently waiting for some kind of good news from the company, and then this week the Soy Energy board announced that were purchasing Freedom Fuels in Mason City.
Freedom Fuels was in the process of going through a Chapter 11 bankruptcy, but then switched to a Chapter 7 bankruptcy. Soy Energy is moving closer to owning the biodiesel plant through direct negotiations for this facility from the bank group that now owns it.
Soy Energy has signed an Asset Purchase agreement and a loan document. The purchase price is $10 million with a direct payment of $4 million and a loan for $6 million to be financed over an 11-year period. The interest rate of approximately 5-percent is fixed for a 5-year period plus one year of construction. After the 5-year period, the interest rate will adjust to a fixed rate equal to the Five-Year LIBOR/Swap Rate plus 3.5-percent but in no case less than 5-percent.
Pursuant to the asset Purchase Agreement, Soy Energy will become the owner 100 percent of the Mason City plant. This plant is a 30-million gallon plant with Crown technology and over 3-million gallons storage located on approximately 42 acres. It is in excellent location with access to two railroad lines and near Interstates 90 and 35.
The Soy Energy Board plans on installing a corn oil module on the front-end of the plant to make the facility capable of using multiple feed stocks. So with $10 million for purchasing the plant rather than build one at $68 million and purchasing a front-end corn oil module, the Board is delighted with the prospect of conserving their financial resources ($50 million), which is a great investment for the Soy Energy LLC investors.
An annual meeting will be held sometime by the end of May or early June so investors can vote to give their approval of this project. Investors may vote in person at the meeting or by proxy delivered by U.S. mail or FAX before the meeting.
In addition to voting on the plant, investors will vote on two amendments to the operating agreement: 1. To provide for the transfer of units under the operating agreement as soon as the asset Purchase Agreement is approved and closes; 2. To allow the Board of Directors to set the number of Directors within a range between five and 11 (currently this is set at a range of seven to 15). This will set the number of Directors positions. Investors will still vote to elect Directors.
The Board has been very diligent in planning, as members want to do as much business as possible with businesses in this area represented by the investors. There will be economic gain in Cherokee County and the surrounding area as money returns to local investors. The Board's intent was originally to build a new plant near Marcus but with economic issues totally out of their control, they have pursued the course they feel is best for the investors. That is the stated number one concern of the board, "What makes the best investment for the investors?"
The land purchase for erecting a biodiesel plant east of Marcus will be retained and rented out. Income from rent pays taxes on the land which could be used for further economic development.
Prior to the annual meeting, a biodiesel marketer will be selected to use in the event that closure on the purchase of the plant and the new business plan is approved by investors. The group has narrowed it down to three major marketers. The final decision will be made by the Board and communicated to investors promptly after the appointment.. They are also working on securing corn oil for the facility.
Before the annual/special meeting, some preliminary engineering will be done to get a guaranteed price on the front-end corn module. They are thinking it will take eight to nine months to get it installed. While that is being constructed, the plant will have the ability to manufacture biodiesel from other vegetable oils. The Board has been contacted by companies interested in supplying these vegetable oils and are looking at these opportunities.
As to whether the Biodiesel Credit will be extended, the U.S. Senate included an extension on March 10 that included a number of legislative measures, a variety of tax provisions, an extension of unemployment insurance benefits, and several health-care related provisions. Now, the Senate and House of Representatives must reconcile the differences between the two. The House passed its version in Dec. 2009. The federal government has mandated the use of 1.15 billion gallons of biodiesel in 2010. This amount is set to increase in subsequent years.
Two current employees of Freedom Fuels are overlooking the plant's daily maintenance - the process manager and maintenance manager. Weekly contact is kept with these two individuals and they have reported the plant is in good condition. If investors approved the new business plan, the Board intends to attempt to recruit former employees of the plant. The board feels they are an excellent group of certified employees who are experienced in biodiesel production.
In this writer;s opinion, saving $50 million for the investors in the Soy Energy LLC is one of the best things that can be said about the company's announced purchase of Freedom Fuels.