A developer of cow manure-to-natural gas facilities financed by tax-exempt debt is continuing to negotiate with bondholders as it attempts to keep its business afloat, according to a news release announcing its third-quarter results.

Environmental Power Corp. reported that it had $1.1 million of unrestricted cash on hand at Sept. 30, and “continues to aggressively pursue capital for a number of sources” and that it’s success at raising capital will help determine “whether it will be able to continue as a going concern.”

In September 2008, the California Statewide Communities Development Authority issued a $62.4 million private placement of tax-exempt private-activity bonds for the firm’s subsidiary, Microgy Inc., to finance cow manure-to-natural gas facilities at dairies in Fresno and Kings counties.

The bonds, with a 2038 maturity, yield 9%.

The California bond agreements required the bonds to be redeemed if the projects failed to materialize by a deadline. In its financial statement, the company said it had negotiated a series of extensions to the bond redemption deadline in anticipation of reaching a new agreement that would result in redemption of only 50% of its California bonds, or $31.2 million, out of its restricted cash.

The anticipated agreement would require Microgy to raise more capital by April 2010, or face full redemption of the California bonds. Similar negotiations were underway with bondholders for projects in Texas, which would force the company to write off $5.9 million in capitalized interest payments, according to its third-quarter report.

The company is also seeking new equity investment to bolster its unrestricted liquidity, the report said.

Environmental Power Corp. trades as EPG on Nasdaq. Its share price closed at 0.35 Tuesday after the earnings announcement, down four cents a share.

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