KiOR enters forbearance agreement, considers sale or merger

KiOR Inc. recently entered into a forbearance agreement with the Mississippi Development Authority in connection to a 2011 loan agreement with the state of Mississippi. The company has also announced an amendment to its previously announced agreement with Vinod Khosla’s KFT Trust. In addition, KiOR indicated it has engaged Guggenheim Securities LLC as its financial advisor and investment banker to provide financial advisory and investment banking services to assist in reviewing and evaluating various financing, transactional and strategic alternatives, including a possible merger, restructuring or sale of the company.

On July 9, KiOR filed an 8-K with the U.S. Securities and Exchange Commission announcing that the company and its KiOR Columbus LLC subsidiary entered into the forbearance agreement on July 3. The agreement pertains to a March 17, 2011 loan agreement between KiOR Columbus and the state of Mississippi and other related agreements. According to the filing, KiOR is a guarantor under the loan documents.

The filing notes that KiOR was unable to make its semi-annual loan payment of $1.875 million on June 30 and was in default of certain non-payment obligation under the loan documents. According to MDA spokesman Jeff Rent, the short-term forbearance agreement the state has negotiated with KiOR requires the company to immediately pay the state a $250,000 fee in exchange for Mississippi agreeing to postpone collection efforts on the outstanding loan payments for 120 days. “The $250,000 fee is a separate payment to the state that does not reduce the company’s liability to the state under the parties’ agreements,” he continued. “MDA entered into this short-term forbearance agreement on advice of outside counsel retained in cooperation with the Attorney General’s office. The forbearance agreement does not diminish or affect the state’s rights to collateral, the company’s liability to the state, or any of the core terms of the parties’ original agreements. MDA will continue to work closely with the company and monitor the company’s progress during the term of the forbearance agreement and take all actions necessary to protect the state’s interest.”

KiOR’s July 9 SEC filing specifies that by the end of the forbearance period and after a notice of three business days, if the company does not either pay the $1.875 million or enter into a transaction with regard to the company’s collateral that is acceptable to the state of Mississippi, then the state can declare all of its obligations due and payable, including principal and interest.

With regard to the agreement with KFT Trust, KiOR announced an amendment that provides for the sale of issuance of protective advanced notes, which are defined as senior secured promissory notes that may be purchased at the sole discretion of KFT Trust in the event the company requires liquidity funding to preserve, protect or prepare for sale or dispose of the collateral subject to the original 2014 note purchase agreement, or to enhance the likelihood and maximize the amount of repayment of the secured obligations under the 2014 note purchase agreement. The amendment also provides for the decrease in the maximum principal amount of notes outstanding permitted at any one time from $25 million to $10 million in aggregate.

The senior secured promissory note and warrant purchase agreement with KFT Trust was officially announced in an SEC filing on April 1. KiOR had announced the possibility of the investment from Khosla in its annual report, which was published March 17. In that report, the company noted it received an investment commitment letter from Khosla on March 16 in which he committed to invest up to $25 million in monthly tranches of no more than $5 million per month. At the time, KiOR expressed doubts about its ability to continue operations without the funding. In its annual report, the company also announced plans to idle its Columbus, Mississippi, facility.

The first tranche of $5 million closed April 3. The second tranche closed on May 22. On May 12, KiOR filed its first quarter financial results with the SEC. In that filing, the company indicated it has suspected all optimization projects in order to bring the Columbus, facility to a safe, idle state.

Information included in the company’s latest SEC filing indicates the company is now considering a merger, restructuring or sale. In announcing its engagement of Guggenhein Securities, however, the company stressed that it cannot provide assurance that a transaction of any kind will occur and has not set a timetable to take any actions with regard to a merger, restructuring or sale. KiOR also indicated that it does not expect to announce or comment on developments with respect to the exploration of strategic alternatives until the board of directors has approved a specific transaction or has other reason to comment.