Montana Renewables, a subsidiary of Calumet Specialty Products Partners and now the largest producer of sustainable aviation fuel in North America, is on a path to list publicly through an IPO that could occur within one year.
The company as of last year was working with Lazard to review strategic options after receiving inbound interest from strategic players, a process that amounts to “an abundance of riches,” Bruce Fleming, CEO of Montana Renewables, said this morning.
The Montana Renewables facility is a SAF, renewable diesel, and renewable hydrogen platform producing an initial run-rate of 30 million gallons of SAF per year, ramping up to 60 million gallons into 2024 and a potential further expansion to 230 million gallons. The complex completed its startup in late April.
A key financial pivot point for Montana Renewables will be the outcome of its loan guarantee application with the Department of Energy, Fleming said. As of March, the subsidiary had been invited to submit a Part II application for a $600m loan guarantee through the Title XVII Innovative Clean Energy Loan Guarantee Program.
“That is a material strategic anchor,” Fleming said. “With a clean balance sheet, the IPO is enabled; the over-under from the bulge bracket banks that we’re talking to is centered on nine months.
The process could unfold more quickly, he said, noting that future speculation depends on market conditions in which to execute on an IPO.
“Knock on wood, if the world economy is going to be on a stable footing, then we’re going to have a pretty compelling pure-play energy transition offering,” he said. “It’s not a small thing to suddenly be the biggest SAF producer in North America that nobody ever heard of.”
Balance sheet
On April 19, MRL closed a $75 million bridge loan with I Squared Capital. The bridge loan bears a variable rate of interest at SOFR plus 6.0 to 7.3% per annum and we have the flexibility to prepay 50% of principal under the bridge loan from free cash flow by the end of 2024.
In August, 2022, Warburg Pincus agreed to invest $250m in MRL in the form of a participating preferred equity security, which values MRL at a pre-commissioning enterprise value of $2.25bn.
Stonebriar Commercial Finance invested an additional $350m through a pair of sale and leaseback contracts on top of its existing $50m commitment to MRL. The sale and leaseback transactions carry an approximate 12.3% cost of capital and offer certain strategic early termination options. Concurrent with those transactions, the $300m convertible investment from Oaktree Capital Management L.P. in MRL was retired.
