DALLAS — Bondholders for a $110 million trash-to-energy plant in Glendale, Ariz., have authorized another $8 million of debt to retrofit the facility so that it can process the kind of debris supplied by the city.
A dispute between Glendale and Vieste Energy, the borrower, over the type of material the city has delivered for processing has precluded the facility from opening and generating revenue to support its outstanding bonds, according to Standard & Poor's.
Bondholders authorized the additional debt after the bonds used to build the plant suffered a five-notch downgrade to BBB-minus from A-plus by S&P in December.
The 2013 Phoenix Industrial Development Authority bonds for the solid waste disposal facility at the Glendale landfill remain on S&P's watch list for a possible downgrade, which would make them junk bonds.
"Vieste has determined that the best course of action would be to retrofit the facility and upsize certain equipment to accommodate the yard waste," according to S&P analyst James Breeding.
The estimated cost is about $6 million, which would include $1 million of capitalized interest, according to Breeding.
Vieste is expected to seek additional considerations from Glendale.
"The city is not responsible nor required to guarantee this debt," Glendale spokeswoman Julie Watters said. "The facility is located in Glendale and the city is only responsible for the terms of the agreement regarding the solid waste disposal services."
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Robert Stevens, president of Globic Advisors, said that his firm was only responsible for tabulating the results. The trustee for the bondholders is Bank of Arizona.
According to disclosure documents, the city has delivered material to the facility that contains a substantial amount of yard waste. According to the operator, there was a significant amount of unacceptable waste in approximately 90% of all the loads.
In an official presentation for the project in 2014, a slide stated that the kind of material the project could convert included yard debris.
"Our project enhances an already existing project," Vieste chairman Michael Comparato said in a
After more than three years of development, the project opened with a ribbon-cutting Feb. 20, 2014 featuring Comparato, Mayor Jerry Weiers and city council member Samuel Chavira.
"More than 200 construction jobs were created with phase one of this project," said Weiers. "There is zero cost to the city on this project, and that is a major benefit to the taxpayers."
Terms of the deal provide Vieste a land lease agreement that is $100,000 per year for a 30-year term, officials said. Vieste, in turn, agreed to pay Glendale an annual recycling management fee of $476,000. The plant is designed to produce up to 350 tons of gas from municipal solid waste every day, providing enough energy to generate 15 megawatts of electricity.
The contract with the city does not specify a buyer for the power produced by the waste.
A fee for solid waste collections is charged on the monthly utility bill, though revenues from those funds are not officially pledged to these bonds, Breeding noted.
"Rather, the facility's operation absent that guarantee provision caused us to lower the rating, as the fundamental credit quality of the stand-alone materials recovery facility does not warrant an 'A' category rating," he said.
