BRADENTON, Fla. – A second U.S. company created by German Pellets appears to be floundering.
UMB Bank N.A., the bond trustee for Texas Pellets Inc., accelerated the outstanding debt on $186.5 million of bonds issued in 2012 due to a default, according to an April 1 material event notice.
The Texas company is owned by German Pellets GmbH in Wismar, Germany, which filed for insolvency on Feb. 10.
The parent company also owns Louisiana Pellets Inc. It filed for Chapter 11 bankruptcy on Feb. 18.
According to UMB, the Texas bonds were accelerated at the direction of a majority of bondholders after the trustee evaluated the amount of funds available as well as determining “the likelihood of additional moneys becoming available for such application,” the notice said.
UMB said that it exercised remedies under the loan agreement and “completed a setoff,” applying all funds in the debt service reserve and other assets in the aggregate amount of $13.7 million against the obligations owed under the agreement.
Bondholders instructed the trustee “not to accelerate payments with respect to the bonds,” according to the notice.
When bonds are accelerated, typically all principal becomes due immediately and payments are made as revenues become available or with revenues on hand.
Texas Pellets did not immediately respond to questions concerning the default and the subsequent acceleration of the bonds.
Prior to acceleration of the bonds, Texas Pellets filed a notice on Jan. 11 saying that a $2.4 million draw on the debt service reserve had been made to complete bond payments due Jan. 1.
The notice said a replenishment of the debt service reserve was anticipated after the company received payment for a shipping contract, although no date was given for the replenishment and the notice did not describe the draw as a default.
Bond documents associated with the issuance of the $186.5 million of non-rated tax exempt industrial development bonds are not available to the general public.
The bonds were issued in private placements by the Sanger Texas Industrial Development Corp., and the offering memorandum is available only to investors.
Bond proceeds were loaned to Texas Pellets, which constructed its first wood pellet production facility in Woodville. It opened in 2013, according to a website maintained by German Pellets.
A second site in the state, a five-silo storage and shipping facility, was built at Port Arthur, a deep-water port used to ship products to Europe.
On Feb. 2, a customer bought $3 million of German Pellets Texas bonds, issued in 2012 and maturing in 2038, for 97 cents on the dollar to yield 8.29%.
In Louisiana, the Chapter 11 bankruptcy case continues to wind through the process that has entangled $330.3 million of outstanding bonds, plus $6.37 million of unpaid interest, issued by the Louisiana Public Facilities Authority in 2013, 2014 and 2015.
The nonrated bond proceeds were used to build a wood pellet plant in Urania, a small lumber town with about 1,300 residents in north-central Louisiana. The plant opening has been delayed because of construction and weather problems.
Chief Judge Robert Summerhays had scheduled a court hearing Monday to consider a final order sought by Louisiana Pellets for a $22 million debtor-in-possession loan to be provided by the bond trustee, UMB Bank, according to court filings.
In early March, a German Pellets spokeswoman told The Bond Buyer that the Louisiana company filed a voluntary bankruptcy petition “to preserve and enhance the value of the facility and their assets, and to provide for additional time and financial flexibility to evaluate restructuring and reorganization options.”
She said the Texas plants were “not involved or impacted” by the Louisiana bankruptcy.
