SAN FRANCISCO — A Southern California company that issued nearly $160 million of municipal bonds for a sewer waste-to-energy business has closed and is in liquidation.
Enertech Environmental Inc. “is in the process of being liquidated,” said Geoffrey Berman, a vice president at Development Specialists Inc., a restructuring firm. “The bond debt would be the senior claim against the proceeds from the liquidation of its assets.”
Berman said bond trustee Deutsche Bank National Trust Co. would likely oversee how the assets would be spread out to the bondholders.
The trustee could not be reached for comment.
In 2007, Enertech was cited by California Treasurer Bill Lockyer as an example of an innovative company fighting global warming when it received its tax-exempt volume cap allocation from the California Debt Limit Allocation Committee, which is chaired by the treasurer. Later that year Enertech issued the bonds, including $130 million of tax-exempt debt, through the conduit California Statewide Communities Development Authority. It also received recognition from the Wall Street Journal for its technology and had received some funding from the U.S. Department of Energy.
A representative for the CSCDA said it had only received the information that had been posted to the Municipal Securities Rulemaking Board’s EMMA disclosure website.
Enertech apparently was beset by struggles to prove its technology early on, culminating this summer in the loss of municipal customers.
“The board decided we were not really sure this was going to work so they excised our out clause,” said Michael Gold, public affairs manager for the Orange County Sanitation District.
In 2006, the company secured contracts with major sanitation districts in Southern California, including those in Los Angeles County, Orange County, Riverside County and San Bernardino County.
Enertech agreed to take dry sewage, termed “biosolids,” to its Rialto, Calif., plant and covert it into fuel for industrial use, according to a report from the Los Angeles County Sanitation District.
The final product was to be “E-fuel” pellets for cement kiln operators and other industrial users, according to a 2007 release from the State Treasurer’s Office.
The district said in its report that “despite concerted efforts and substantial addition investment of four years of operation,” Enertech has been unable to show that its facility is reliable.
In July, the sanitation districts exercised their options to exit their contracts.
Gold said the contract with Enertech had already cost more than sending the biosolids for use as fertilizer for non-food agriculture, but the districts had accepted the cost initially because the technology appeared to provide a sustainable energy source.
No disclosure documents on EMMA specifically mention the liquidation. The most recent filing from Deutsche Bank said Enertech missed interest and deferred interest payments due June 1 on its senior tax-exempt revenue bonds.
According to another filing, Enertech began drawing on its reserves to pay debt service in June 2010.
A document posted to EMMA in April said the company failed to meet agreements, causing “new defaults,” notably for failing to achieve startup of its facility or deliver an acceptable strategic plan.
Calls to listed phone numbers for the company in California and its headquarters in Atlanta went unanswered.
Enertech’s website has also been shut down.
In May, Standard & Poor’s said it pulled its D rating on the company’s municipal bonds and $9 million of taxable debt.
The rating agency, which appears to be the only one to have covered the company’s debt, said it had lowered the rating to SD from CCC-plus in January 2011 and then to D in January 2012.
The downgrades followed “adverse amendments to the loan agreements and nonpayment of principal and interest, Standard & Poor’ s reported when it dropped the rating.
“Although the debt has not been accelerated, we are withdrawing the rating because we believe the project will be subject to continued distressed exchanges and the increasing possibility that it will not operate as a going concern,” Standard & Poor’s analyst Grace Drinker said in the report.