New Chapter 11 Bankruptcy Filing - CalPlant I Holdco LLC

CA-based MDF plant seeks buyer in District of Delaware

On October 5, 2021, CA-based CalPlant Holdco LLC and its affiliate CalPlant I LLC (together, the “debtors”) filed chapter 11 bankruptcy cases in the District of Delaware. Politics is not our forte but we can’t help but find the timing of this filing to be a little unfortunate.

In case you haven’t heard, there’s been a ton of drama in Washington DC over the last several weeks as politicians try to hammer out, among other things, a grand infrastructure plan. Within that plan, the Biden Administration hopes to promote positive change for the environment while also investing in R&D and technologies of the future. We’re talking trillions of dollars people.

Here — with the help of the state of California — the debtors constructed and (sort of) operate the world’s first manufacturing plant (the “Plant”) that converts rice straw — a waste product of rice farming — into medium density fiberboard (“MDF”). MDF is an engineered wood product that counts as one of the most versatile building materials available in the market today; it has a density, strength and durability greater than plywood.

The debtors’ Plant has been in development for almost three decades but it only recently — in 2017 — obtained the financing necessary to finance the construction and operation of the Plant. Consequently, the debtors only very recently started selling MDF. The debtors expect, however, to be able to convert approximately 280k tons of post-harvest rice straw into 140-150mm square feet of MDF annually once the Plant becomes fully operational.

This being a CA-based company and all, environmental conservation is at the heart of the debtors’ history. Per the debtors:

The Plant eliminates more traditional methods of rice straw disposal, which historically involved the incineration of leftover rice straw and currently necessitates the reincorporation of straw into the soil, followed by flooding the field with water and chemicals to hasten decomposition. The Debtors’ method not only reduces methane emissions and water consumption, it also offers rice farmers a less expensive, less labor intensive, and more sustainable means to dispose of waste. Further, using rice straw as feedstock reduces the need to cut down trees that filter CO2 from the atmosphere. To date, no other large-scale economically-viable post-harvest uses for rice straw have been developed, so the Plant represents the sole source for disposing of rice straw in an environmentally friendly and economically favorable manner.

And ESG considerations are at the heart of the debtors’ (extensive) government-issued funding.

In June 2017, the California Pollution Control Financing Authority (“CPCFA”) issued $228.1mm in Solid Waste Disposal Revenue Bonds a/k/a “Green Bonds” agented by BOKF NA (as successor indenture trustee). The CPCFA then loaned the proceeds of these “Senior Bonds” to the debtors. The bonds are secured by, among other things, the Plant and 273 acres of the debtors’ property in Willows, California.

In August 2019, the CPCFA issued another series of bonds totaling $73.685mm which are subordinate in priority to the ‘17s. The indenture trustee under these bonds is UMB Bank NA.

In October 2020, the CPCFA issued an additional $42mm of Senior Bonds.

The debtors are in default under both indentures, having failed to make installment payments due under the respective bonds. Consequently, the debtors have been operating under non-acceleration agreements with both trustees.

The failure to make the installment payments stems from a variety of operational difficulties too boring to list here. Suffice it to say that anyone who has ever personally dealt with general contractors on construction projects can assume the cliche that the construction process suffered delays and cost overruns because, like, that always happens.

So where is this thing going?

Let’s all say it together:

The debtors have a plan support agreement (“PSA”) with certain consenting senior bondholders that contemplates a sale process via court-approved bidding procedures, an auction (assuming bidders), and consummation via a chapter 11 plan of reorganization. Alternatively, if no bidder emerges, the PSA calls for a pivot to a chapter 11 plan that would initiate a debt-of-equity swap with the senior bondholders. The debtors foreshadow that any such plan would involve take-back paper and exit financing. The senior bondholders who’ve consented to the PSA will provide $30.1mm in 9.5% DIP financing ($26mm new money) and consent to use cash collateral to fund the sale/plan process.

And now we wait and see whether a buyer emerges.

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The debtors are represented by Morrison & Foerster LLP (Jennifer Marines, Benjamin Butterfield, Miranda Russell) & Morris James LLP (Eric Monzo, Brya Keilson) as legal counsel and Paladin Management Group (Sheon Karol, Peter Richter) as financial advisor. BOKF NA, as indenture trustee to the senior bondholders, is represented by Mintz Levin Cohn Ferris Glovsky & Popeo PC (Miyoko Sato, William Kannel).


Date: October 5, 2021

Jurisdiction: D. of Delaware (Judge Dorsey)

Company Professionals:

  • Legal: Morrison & Foerster LLP (Jennifer Marines, Benjamin Butterfield, Miranda Russell) & Morris James LLP (Eric Monzo, Brya Keilson)

  • Financial & Communications Advisor: Paladin Management Group (Sheon Karol, Peter Richter, Jennifer Mercer, Liz Gonzalez)

  • Claims Agent: Prime Clerk LLC (Click here for free docket access)

Other Parties in Interest:

  • 2017 Senior Bond Indenture Trustee: BOKF NA

    • Legal: Mintz Levin Cohn Ferris Glovsky & Popeo PC (Miyoko Sato, William Kannel)

  • 2020 Senior Bond Indenture Trustee:

  • 2019 Subordinate Bonds Indenture Trustee: UMB Bank NA