Rentech secures loan, explores alternatives for nitrogen business

By Erin Voegele | February 18, 2015

Rentech Inc. has announced that GSO Capital Partners LP, the credit investment arm of Blackstone, has increased its credit facility for Rentech by up to $63 million. According to Rentech, the majority of the proceeds from the new facility are expected to fund completion of the company’s pellet projects in Canada through positive cash flow. Rentech said it now estimates the cost to complete the construction of its Canadian wood pellets to be $125 to $130 million, up from $105 million.

Rentech is developing two pellet plants in Ontario. The 100,000-metric-ton-per-year Atikokan facility is currently in the commissioning phase, and is producing and selling pellets to Ontario Power Generation. The facility is expected to be operating at full capacity within the next six to 12 months. The 450,000-metric-ton-per-year Wawa facility is nearing completion of construction. According to Rentech, startup and commissioning is expected to begin in the second quarter, with full capacity expected to be reached within one year of the start of commissioning.

The new term loan, along with other cash resources, is expected to be sufficient to fund the Atikokan and Wawa projects until they are commissioned and begin to generate positive cash flow. Rentech attributes the increased costs to delays in construction and higher labor costs for the installation of electrical and mechanical components. The company said it expects working capital and the cost to commission the plants will add approximately $6 to $10 million to the estimated total project cost.

According to Rentech, the new lending commitment is in the form of a two-tranche delayed draw term loan, which will be available for up to one year. One tranche allows the company to borrow up to $45 million, of which Rentech has initially borrowed $25 million. The remaining commitment of up to $18 million may be utilized in the event of certain unplanned downtime at the East Debuque facility or unfavorable changes in commodity prices that affect cash distributions from Rentech Nitrogen Partners.  

“We appreciate the support GSO Capital Partners continues to provide us, this time in the form of additional term loans,” said Keith Forman, president and CEO of Rentech. “The task at hand remains clear—to complete the construction and commissioning of, and to place into service, our new pellet facilities in Canada. This will be done in as timely and safe a manner as possible to preserve profitability for our investors. At the same time, we will continue our focus on operating our fertilizer assets profitably, safely and efficiently. We will work to simplify our capital structure and add to our liquidity in the future. Our focus on cost containment is an ongoing process and will continue to evolve, as indeed our company will evolve, over the next year.”

A statement released by Rentech also explains that the company has engaged an independent consulting firm to assess its cost structure and has taken actions to reduce its projected consolidated cash operating costs and expenses this year by approximately $15 million, when compared to last year.

On the same day it announced the new credit facility, the company issued a separate statement indicating the board of directors of Rentech Nitrogen Partners L.P. has initiated a process to explore and evaluate potential strategic alternatives, which may include a sale of the partnership, a merger with another party, a sale of some or all of the assets of the partnership, or another strategic transaction. Rentech Nitrogen has retained Morgan Stanley as its financial advisor to assist with the strategic review process. Rentech owns the general partner and approximately 60 percent of the common units of Rentech Nitrogen.