October 16, 2012 / 9:36 PM / 5 years ago

Muni debt-backed energy plant in California falters

SAN FRANCISCO, Oct 16 (Reuters) - If buyers do not step forward for a renewable energy plant in California funded with nearly $160 million of tax-exempt municipal debt, the facility and its assets could be put up for auction, the restructuring expert handling its liquidation said on T ues day.

The EnerTech Environmental Inc facility in Rialto, California, failed to work out as planned and t he company has shuttered it, said Geoffrey Berman, a vice president at the Los Angeles office of Development Specialists Inc.

“They’re out of business,” Berman said of the facility, noting that Atlanta-based E nerTech has not filed for bankruptcy.

Berman said he is helping the company liquidate the plant, which converted biosolids to fuel, and its assets for the benefit of creditors. They include investors who bought bonds issued through the California Statewide Communities Development Authority to help finance the plant.

The EnerTech unit in California had received proceeds from bonds in conduit financing through the California Statewide Communities Development Authority. The debt was issued in 2007.

Standard & Poor’s Ratings Services in September 2011 lowered the ratings on two series accounting for $130.125 million in the senior tax-exempt revenue bonds and $9.0 million in senior taxable revenue bonds to ‘D’ from ‘CCC-plus’.

This past May S&P withdrew its rating on the debt, noting in a report that there was “significant uncertainty” whether the company’s California operation would be a going concern.

An October 1 notice filed with the Municipal Securities Rulemaking Board by Deutsche Bank National Trust Co, the trustee for the debt, noted EnerTech’s failure make payment on the bonds in June.

The Orange County Sanitation District ended a contract in July with EnerTech due to the inability of the company’s Rialto facility to handle the volume of biosolids sent to it on a consistent basis, district spokesman Jim Colston said.

The facility was under contract to take 225 tons of processed sewage sludge from the district per day, which was processed into a coal substitute, Colston said.

EnerTech could not be reached for comment.

Berman said there is a possibility the company’s California facility could be taken over by buyers looking for a similar o p eration. Or, he said, the facility may be put up for auction.

Berman said he not aware of any secured claims ahead of bondholders, adding that it is too early to say how much they will recover: “Until I know for a certainty, I don’t guess.”

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