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HydroDec progresses with refinancing, agrees possible joint venture
1st Oct 2020 12:39
(Sharecast News) - Oil re-refining company HydroDec Group updated the market on its trading on Thursday, reporting progress on its refinancing package.
The AIM-traded firm said it had continued to work on a refinancing package for the Canton plant and assets, in order to replace the existing equipment lease, which it said was over-collateralised, with an extended facility to provide additional funds for feedstock, approved capital expenditure and growth opportunities .
Following discussions with a number of parties in recent months, outline terms had now been agreed, and progress was being made with one party with the expectation of a refinancing being completed "in the near future".
In the meantime, the board said it remained reliant on the ongoing support of its major shareholder Andrew Black, who had lent about $3m (£2.32m) in cash since 30 June 2019.
HydroDec also announced that it has signed heads of terms with an unnamed US industrial recycling company, which it said has "significant experience" in handling, decommissioning and recycling solutions for used, outdated or failed electrical transformers and other utility equipment.
The parties intended to create a joint venture in the US, the board said, under which it would use part of Canton site to establish a facility to dismantle and recycle pole and pad-mount electrical transformers.
HydroDec said the joint venture's aim would be to combine the partner's access to the utilities with its ability to produce re-usable transformer oil and generate carbon credits.
By combining, the board said the parties were aiming to create a "market leading" re-refining business in the US.
The group's contributions to the joint venture would include the land, PCB licences and permits, use of carbon credits, and capital towards the construction budget.
It said its share of the capital expenditure budget was estimated at around $0.4m, net of the contribution of land, and remained subject to successful conclusion of the proposed refinancing arrangements.
The joint venture would transfer all used transformer oil extracted at the facility to HydroDec of North America at no cost, and the group's joint venture partner would sell all the used oil it secures outside of the joint venture's activities to HydroDec of North America at cost.
It was expected that the volumes of oil would be material in the context of HydroDec's existing capacity, at around 25% of its nameplate capacity of 12 million US gallons.
In return, the partner would be entitled to receive 10% of the annual net profits of HydroDec of North America.
The partner would also be appointed as HydroDec's strategic collection partner in sourcing used oil and the associated carbon credit programme, leveraging its established relationships with US utilities.
HydroDec said the heads of terms were not legally binding, and warned there could be no guarantee that the joint venture and related transactions would complete.
Finally, the board updated the market on current trading conditions, reporting that given the ongoing uncertainty provided by the Covid-19 pandemic, the market conditions under which it operated remained "challenging", with its ongoing working capital constraints providing additional challenges.
Cost cutting measures, including a permanent reduction in headcount and employee pay, had been implemented.
During the period, the firm said it had [serviced its major customers and, despite the challenges faced, HydroDec of North America contributed a "marginally positive" EBITDA to overall group performance since the second quarter.
Following the capitalisation of group debt funding provided to HydroDec of North America, the group said it had increased its stake in the firm from 85% to 95% as at 30 September.
"Covid-19 has brought unique challenges to our operating environments and, in addition, working capital constraints, by necessity, have had a material impact on our ability to source feedstock, which in turn drives volume, margin and overall financial performance," said chief executive officer Chris Ellis.
"However, we continue to pursue our strategy targeting US utilities highlighted in the update provided earlier in the year, and the progress made to refinance the company together with the joint venture agreement signed with a transformer recycling company will, if and when consummated, position the company strongly to build on the encouraging signs of its sustainability strategy.
"Whilst the temporary suspension of trading in the company's shares is clearly disappointing, especially given the challenges presented by the global pandemic, the company is seeking to implement alternative auditing arrangements that will enable it to publish the financial results for the 18 month period ending 30 June by the end of December while continuing to safeguard its personnel and operations in Canton and thereby allow the lifting of the suspension."
The AIM-traded firm said it had continued to work on a refinancing package for the Canton plant and assets, in order to replace the existing equipment lease, which it said was over-collateralised, with an extended facility to provide additional funds for feedstock, approved capital expenditure and growth opportunities .
Following discussions with a number of parties in recent months, outline terms had now been agreed, and progress was being made with one party with the expectation of a refinancing being completed "in the near future".
In the meantime, the board said it remained reliant on the ongoing support of its major shareholder Andrew Black, who had lent about $3m (£2.32m) in cash since 30 June 2019.
HydroDec also announced that it has signed heads of terms with an unnamed US industrial recycling company, which it said has "significant experience" in handling, decommissioning and recycling solutions for used, outdated or failed electrical transformers and other utility equipment.
The parties intended to create a joint venture in the US, the board said, under which it would use part of Canton site to establish a facility to dismantle and recycle pole and pad-mount electrical transformers.
HydroDec said the joint venture's aim would be to combine the partner's access to the utilities with its ability to produce re-usable transformer oil and generate carbon credits.
By combining, the board said the parties were aiming to create a "market leading" re-refining business in the US.
The group's contributions to the joint venture would include the land, PCB licences and permits, use of carbon credits, and capital towards the construction budget.
It said its share of the capital expenditure budget was estimated at around $0.4m, net of the contribution of land, and remained subject to successful conclusion of the proposed refinancing arrangements.
The joint venture would transfer all used transformer oil extracted at the facility to HydroDec of North America at no cost, and the group's joint venture partner would sell all the used oil it secures outside of the joint venture's activities to HydroDec of North America at cost.
It was expected that the volumes of oil would be material in the context of HydroDec's existing capacity, at around 25% of its nameplate capacity of 12 million US gallons.
In return, the partner would be entitled to receive 10% of the annual net profits of HydroDec of North America.
The partner would also be appointed as HydroDec's strategic collection partner in sourcing used oil and the associated carbon credit programme, leveraging its established relationships with US utilities.
HydroDec said the heads of terms were not legally binding, and warned there could be no guarantee that the joint venture and related transactions would complete.
Finally, the board updated the market on current trading conditions, reporting that given the ongoing uncertainty provided by the Covid-19 pandemic, the market conditions under which it operated remained "challenging", with its ongoing working capital constraints providing additional challenges.
Cost cutting measures, including a permanent reduction in headcount and employee pay, had been implemented.
During the period, the firm said it had [serviced its major customers and, despite the challenges faced, HydroDec of North America contributed a "marginally positive" EBITDA to overall group performance since the second quarter.
Following the capitalisation of group debt funding provided to HydroDec of North America, the group said it had increased its stake in the firm from 85% to 95% as at 30 September.
"Covid-19 has brought unique challenges to our operating environments and, in addition, working capital constraints, by necessity, have had a material impact on our ability to source feedstock, which in turn drives volume, margin and overall financial performance," said chief executive officer Chris Ellis.
"However, we continue to pursue our strategy targeting US utilities highlighted in the update provided earlier in the year, and the progress made to refinance the company together with the joint venture agreement signed with a transformer recycling company will, if and when consummated, position the company strongly to build on the encouraging signs of its sustainability strategy.
"Whilst the temporary suspension of trading in the company's shares is clearly disappointing, especially given the challenges presented by the global pandemic, the company is seeking to implement alternative auditing arrangements that will enable it to publish the financial results for the 18 month period ending 30 June by the end of December while continuing to safeguard its personnel and operations in Canton and thereby allow the lifting of the suspension."