Unrated private activity bond deal will fund Ohio paper mill
DALLAS -- The Ohio Air Quality Development Authority plans to sell $210 million in tax-exempt revenue bonds to help Pratt Paper LLC build a mill to recycle waste paper and corrugated containers in Wapakoneta, Ohio.
The unrated exempt facilities revenue bonds will be used to finance the construction and development of a 470,000 sq ft. paper mill facility in Wapakoneta, which is approximately 90 miles from Columbus and approximately 115 miles from Cincinnati. Such tax-exempt project bonds would be barred under tax reform legislation moving forward in the U.S. House of Representatives.
The project is expected to be completed in the fourth quarter of 2019 and will be owned by Pratt Paper, a subsidiary of Pratt Industries, Inc.
Bank of America Merrill Lynch is lead underwriter. Ballard Spahr LLP and Thompson Hine LLP are co bond counsel. The bonds are scheduled to price on Nov. 15.
The bonds are secured by a mortgage on assets of the Ohio paper mill project. Pratt Industries will deliver a guaranty that will remain in place during construction and initial operations of the facility.
The mill will be located on a 60-acre site which is part of a larger site owned by Pratt Paper. Pratt Paper anticipates that a box plant will be constructed on the remainder of the site. The mill is expected to produce about 180,829 tons of recycled container board in its first year of operation and will gradually ramp up to a maximum production capacity of 396,000 by the tenth fiscal year and remain at this level through the remaining term of the bonds.
The Project’s total cost is $275 million, roughly $15 million more than the Valpariaso, Indiana mill, another partially bond financed mill the company completed in 2015. “Most of that difference is due to the waste water pre-treatment plant which is being finance by the city but here it’s inside the capital budget,” said Gary Byrd, President of Pratt Holdings.
That mill was financed using $200 million of tax-exempt bonds. Construction of the Indiana mill was completed on time and on budget, Byrd said. The company initially projected production capacity at roughly 199,000 tons in year one but actual production rates were higher at 229,343 tons.
The project is part of Pratt’s strategy of vertically integrating paper mills and box making facilities. “By integrating the two, Pratt is able to supply quality paper at a cost well below sourcing paper from third party suppliers,” said Byrd. The company said it plans to acquire corrugating and converting assets to drive further vertical integration.
Pratt Industries has $285 million of debt outstanding and with the addition of the bonds that debt is expect to peak to $457 million but in investor presentation CFO Stephen Ward said that debt outstanding is expected to be reduced to $239 million by 2022.
The Atlanta-headquartered company is the fifth largest provider of corrugated boxes in the US. With the Ohio recycle mill, Pratt Industries will have 5 recycle mills in the US.