David A. Schwedel (J. Albert Diaz)
The Deal: The executive director of Coalview Ltd. completed $42 million in project financing for a subsidiary, Coalview Centralia LLC.
Details: Coral Gables-based Coalview bought Beard Technologies Inc. in April 2011 from Beard Oil Inc. Beard Technologies was in talks with TransAlta USA, a power generating company servicing communities in the Northwest, to build a fine coal recovery plant.
Fine coal recovery retrieves coal debris, which is considered waste in normal coal-mining operations, from waste impoundments and sells it.
TransAlta originally intended to pay for the plant. Schwedel proposed TransAlta keep its money but guarantee fine coal purchases for 12 years. In exchange, Coalview would finance, build, own and operate the plant.
Schwedel approached the Washington Economic Development Finance Authority, a government entity that acts as a conduit for revenue bonds for projects in manufacturing, processing and waste disposal. WEDFA was to provide $26.5 million in environmental revenue bonds.
“It’s the first time that we are aware of that this type of financing has been done for this type of project,” Schwedel said.
TransAlta agreed to provide more than $10 million in capital equipment contributions.
Preparing the bond issue turned out to be extremely complicated, Schwedel added. The remaining $5.2 million was equity provided by Coalview, with Schwedel personally putting down $3 million.
“When you’re creating a bond instrument, you’re starting from scratch. It’s not like a home loan where those deal documents are boilerplate. They’re already baked,” he said.
There were three sets of deal documents required—bond debt, equity and project documents.
The project documents alone were extensive. They included such elements as a brownfield land lease, an offtake agreement guaranteeing TransAlta future purchases, operations and management plans, and engineering and construction contracts.
The 30-member working group included 25 attorneys representing the interested parties: Coalview, TransAlta, WEDFA, lead investor Franklin Templeton Investments and underwriter Oppenheimer & Co. Inc.
Coalview was represented by Jorge Freeland and Jonathan Mann at White & Case in Miami.
Throughout the negotiations, Schwedel had to make sure the document sets aligned with everyone’s interests.
“We wanted to make sure the deal documents represented the deal as we understood it, to TransAlta and Coalview,” he said. “Then we had to make sure all the bond and equity investor documents represented the interests of those parties and that they mirrored the project agreements.”
Schwedel credited the bond issue’s success in part to the quality of Oppenheimer bank officers John Rodstrom and Jon Murstein and the legal work in getting the bonds to market.
The bond issue closed Dec. 20. Construction has started, and the plant is slated to be in operation Dec. 1.
Schwedel emphasized the plant is designed to last 30 years. However, it will cease operations in 12 because that’s when TransAlta is required by law to switch its 1,340-megawatt coal-fired power plant in Centralia, Wash., to natural gas.
Quote: “At the time we had gone to market, the bond market had crashed. Detroit filed for bankruptcy, and there was talk the city would default. A few months after that, Barron’s magazine ran a cover story that Puerto Rico may default on $60 billion of debt,” Schwedel said. “In the face of all that—one of the worst bond markets in history—we were still able to place the bonds.”
Background:Schwedel also is general partner and founder of DAS Family Holdings LP. He has been responsible for completing more than $1.5 billion in financing in his 25-year career. He serves on the boards of Coalview, First Southern Group Ltd. and several other enterprises.