Transcript Ethanol Finance & Investment May 25 – 26

Financing the Biofuels Industry
Mike Bryan
CEO
BBI International
300 Union Blvd., Suite 325
Denver, CO USA 80228
[email protected]
Introduction to BBI
BBI International
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BBI International founded in 1995 by Mike
and Kathy Bryan
Over 130 full-time employees
Three Divisions:
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Conference Division
Media Division
Project Development Division
An independent source of information and
data for owners, lenders and policy makers
BBI International
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Leading biofuels consulting company in the US with
more than 200 renewable energy projects completed
in the last seven years
Expertise in ethanol and biodiesel production from
starch, sugar, cellulose and oilseed/animal fat based
feedstocks
Expertise in emerging technologies for the
production of ethanol and chemicals from
lignocellulosic feedstocks
Expertise in ethanol and biodiesel project
development
Financing the Biofuels Industry
Key Concerns Faced Today
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Construction
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Demand Economics
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Determine volumes consumed & pricing cycles
What is the maximum biofuels market for Mexico?
World Demand
Crush Margin (feedstock prices in relation to ethanol)
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Unproven builders or lack of time
Performance guarantees
Risk management
Lack of long term contracts for ethanol
Plant Management…who will manage the facility?
What does it take to Attract Financing?
The Five “C’s” of Credit:
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Capacity
Capital
Character
Collateral
Conditions
Repayment ability
Financial condition
Management
Quality and value
Market & Economics
Have an Understanding of:
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Markets
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Inputs
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Outputs
Management
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Board Direction
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Plant Operations
Money – (Cash flow available)
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Debt Payments
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Dividend Payments
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Tax Payments
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Future Capital Expenditures
Project Finance
We define project finance as the ability to raise funds
to finance an economically viable project.
 Debt Capital
 Equity Capital
The providers of these funds look to the cash flow
 Not the Income Statement
 Cash flows needed:
 To service debt (loan payments)
 To pay a return on invested capital (dividends)
Risk Management
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Risk management by definition has to do with
“maximizing the areas where we have some control
over the outcome while minimizing the areas where
we have absolutely no control over the outcome and
linkage between effect and cause is hidden from us.”
Against the Gods – Peter Bernstein
Types of Legal Structures
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Sole Proprietorship
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General & Limited Partnership
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Corporation (C or S corp.)
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Limited Liability Companies (LLC)
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Farm / Agricultural Cooperatives (Coop)
Decisions For Legal Structure
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Taxation
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Liability
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Risk and control
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Continuity of existence & transferability of
ownership
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Expense and Formality
Financial Structures
The providers of capital look to the cash flow for payment
on their contributions.
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All Equity
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Senior Debt and Equity
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Senior Debt, Sub Debt, and Equity
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Lease Buy Back
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Bonds
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Securities instrument
Rich Dad’s Guide To Investing
The most important issue here is not return ON
investment. The most important issue is return OF
investment. Security of capital is very important.
By Robert T. Kiyosaki
Financial Structures
Conditions for Ensuring Success
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Covenants
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Liquidity
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Repayment Capacity
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Leverage
Risk Management
Liquidity
Working Capital:
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$0.04 per liter
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At start up of the plant
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Depending on the time of year
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Varies depending on inventory carrying cost
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Feedstock
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Ethanol
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Energy costs
Debt & Equity Ratio
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Total cost of plant, property and equipment
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All pre-production, organizational and general
operating funds through the end of construction
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Beginning working capital, (cash to cover
outflow of funds so you do not over draw your
bank account)
Base Loan Criteria in USA
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Debt to Equity
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40% to 60% Equity for Producer Owned
25% to 50% Equity for Investor Owned
or
$.21 to $.26 per liter of total debt per
project
Construction Risks
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Risk of design and construction of the project
Risk of the project meeting the performance
specification
Risk of completion and by a fixed date
Risk of performance of contractors
consultants, subcontractors and suppliers
Risk on Contractor insolvency
Types of Construction Contracts
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Turnkey, Lump Sum Fixed Price, or
Guaranteed Max Price
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Date Certain
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Full Wrap to hold Contractor Liable
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Draw down (payment) schedule
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Milestone payments and construction
schedule
Mitigating Risk in Construction
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Performance Bonds or other Insurance type
products
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10% retained on each construction invoice
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Date Certain for mechanical, substantial final
completion for Liquidated Damages
Mitigating Risk in Construction
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Liquidated Damages is payment for loss revenue
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Performance guarantee
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Emissions compliance
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Capacity
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Energy Utilization
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Production
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Yield
Best on set times for Measurement
Clearly Define the Scope
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Owners Scope of work & budget
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Site
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Working Capital
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Financing
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Other
Contractor Scope of Work & budget
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Technology
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Equipment plans
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Site layout
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Permitting
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Other
Operational Risk
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Price Risk
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Supply and Demand Risk
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Transportation Risk
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Performance – plant operation
Ethanol Crush Margin
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Revenue from Ethanol, DDGS and CO2
Minus
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The total cost of feedstock plus the usage of
energy needed to turn corn into ethanol
(natural gas or coal)
Feasibility Study
Evaluating the Potential for Success!
Key Elements of an Ethanol Feasibility Study
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Site selection
Feedstock analysis
Market analysis
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Ethanol
DDGS
CO2
Financial analysis
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Construction costs
Owner’s costs
Operating costs
Projected profitability and sensitivity
studies
Site Selection
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Typically 16 hectares in a rural area
with:
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Low cost feedstock
Good rail access
Good road access
Adequate utilities at reasonable cost
Close proximity to co-product markets
Access to ethanol markets
Access to labor
Financial Analysis
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Use conservative assumptions – 10 year
pricing for corn and ethanol
Use ROI or IRR for profitability
Assume 50% equity
25% minimum ROI, 30% for better projects
Returns are most sensitive to feedstock and
ethanol pricing
Owner’s Costs
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Land, roads, rail & site development
Administration building/furnishings
Utilities, water treatment, fire water
Permits
Startup costs and training
Construction interest and loan fees
Inventory costs
Owner’s Costs add 8-10¢ per liter to the
overall project cost
BBI Feasibility Study
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Executive Summary
Site Assessments and Recommendation
Feedstock Analysis
Ethanol Market Analysis
DDG & CO2 Market Analysis
Detailed Financial Analysis with
Sensitivity Study & 10-year Pro Forma
Competitive Analysis
Summary and Recommendations
Commercialization Strategy
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The successful model
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Site with adequate feedstock supply, utilities,
transportation and markets
Utilize successful design/build firms
Hire experienced ethanol marketing and risk
management firms
Assemble first rate management team
Raise 50% equity
Projected Return on Equity should be 30% or
higher
For More Information Contact
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Fundación E Misión
Lic. Isabel Gómez Macías
Presidenta
Tel: (33) 3678-9153
Fax: (33) 3678-9200
[[email protected]]