CHICAGO -- Midwest Fertilizer Corp., which sold $1.3 billion of notes last week to finance a controversial fertilizer plant in Indiana, plans to roll the notes into long-term debt in the first quarter of next year.

It’s expected to be the largest junk-rated private activity bond issue to date when it comes to market.

Midwest Fertilizer, owned by Fatima Group, one of Pakistan’s largest conglomerates, has faced a rocky time since the Indiana Finance Authority originally sold $1.3 billion of notes for the deal last December.

The original deal was timed to beat the expiration of the Midwestern Disaster Area Bond program.

The original plan was to issue six-month notes to give the company time to finalize project details before the July 1 mandatory tender date.

But a month after the borrowing, U.S. defense officials raised concerns about the use of Fatima’s fertilizer product in explosive devices deployed against American soldiers in Afghanistan and Pakistan. Indiana Gov. Mike Pence halted the project in January, a day after taking office, and formally dropped all state support in mid-May.

The company scrambled to arrange a new deal with Posey County, Ind., site of the proposed plant, acting as conduit.

“It’s been a difficult process,” Todd Eckland, a partner at Pillsbury Winthrop Shaw Pittman LLP, which represents Midwest Fertilizer, told the Bond Buyer Monday. Eckland said the company was surprised Pence dropped state support.

“We frankly had not expected that,” he said. “But we rose to the challenge, and the company effectively moved it from a state matter to a local matter.”

Posey County priced the deal last Wednesday, and closed it Monday.

Dogged by months of negative headlines and entering one of the weakest muni bond markets in years, the company paid a significantly higher interest rate than it did on the original deal. Last week’s notes saw a rate of 0.75%, up from a 0.20% on the original six-month note issue.

“It was a tough market certainly,” Eckland said. “But we ended up having a successful pricing.”

Guggenheim Securities LLC and Citi were the underwriters. Barnes & Thornburg LLP was bond counsel.

The new notes have an Oct. 17 termination date. The company will have to roll them over again for another few months before heading back to market with a final long-term borrowing around March of next year.

The long-term debt is expected to mature through 2046, though a final structure has not been set.

Fatima continues to develop a new fertilizer product that is less explosive to address U.S. concerns. Joint testing on the new product is expected to begin this summer. If it passes muster, Pence may renew state support.

A similar project in Iowa was converted to a $1.2 billion long-term bond financing in April.

The recent explosion at a West, Texas fertilizer plant days before Iowa priced its deal is not expected to pose a risk to the Indiana plant, Eckland said.
“That was a mom and pop, decades-old facility and this is a state-of-the-art, capital intensive fertilizer plant in Indiana,” he said. The two plants make different kinds of fertilizer.

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