In the United States (US), the world's largest industrial wood pellet producer Enviva Partners, LP (Enviva) has announced that it has agreed to purchase compatriot pellet producer Georgia Biomass in Waycross, Georgia (GA) with its associated export terminal capacity in the Port of Savannah, GA from innogy SE. Furthermore, Enviva also has agreed to purchase the pellet production plant in Greenwood, South Carolina (SC) owned by its sponsor.
In connection with the Greenwood acquisition, the sponsor has agreed to assign to Enviva five firm, long-term, take-or-pay off-take contracts with creditworthy Japanese counterparties that have maturities between 2031 and 2041, aggregate annual deliveries of 1.4 million tonnes per annum, and an aggregate revenue backlog of US$5.3 billion.
Enviva also announced that it has signed a purchase agreement with investors for the sale of US$200.0 million in common units in a private placement to finance a portion of the US$375 million combined purchase price of these acquisitions with the balance sourced from Enviva’s existing US$350.0 million revolving credit facility.
The Greenwood and Georgia Biomass acquisitions are fundamentally transformative for Enviva’s scale and diversification. Not only are we increasing Enviva’s fully contracted production capacity by 35 percent, but we are doing so in new fiber baskets, with new deep-water terminal infrastructure, and with new customers under new long-term, take-or-pay off-take contracts that we expect will enable us to continue our track record of generating durable cash flows and growing our distributions sustainably well into the future, said John Keppler, Chairman, and CEO of Enviva.
Expand production and terminal capacities
Enviva Partners currently owns and operates seven pellet plants with a combined production capacity of approximately 3.5 million tonnes per annum located in Virginia (VA), North Carolina (NC), Mississippi (MS), and Florida (FL).
In addition, Enviva operates its own marine terminals for pellet exports at the Port of Chesapeake, VA, and the Port of Wilmington, NC along with third-party marine terminals in Mobile, Alabama (AL) and Panama City, FL.
The Georgia Biomass and the Greenwood acquisitions, located in Georgia (GA) and South Carolina (SC) respectively, would add two operating pellet plants with a combined annual production capacity of approximately 1.4 million tonnes, after the expansion of the Greenwood plant, and a third-party marine terminal in the Port of Savannah, GA.
Georgia Biomass acquisition
Enviva has agreed to purchase Georgia Biomass Holding LLC, which, through its wholly-owned subsidiary, owns a wood pellet production plant in Waycross, GA from innogy SE and one of its subsidiaries for a purchase price of US$175.0 million in cash, subject to customary adjustments.
The Waycross plant has been operating since 2011 and has an annual production capacity of approximately 800 000 tonnes. As part of the acquisition, Enviva also will acquire long-term, take-or-pay off-take contracts with an existing Enviva customer for annual deliveries of approximately 500 000 tonnes through 2024.
The Waycross plant exports its wood pellets through a terminal at the Port of Savannah, GA under a long-term terminal lease and associated services agreement. Enviva expects the Georgia Biomass acquisition to close in the third quarter of 2020, subject to customary closing conditions.
Greenwood acquisition and expansion
Enviva has also agreed to purchase Enviva Pellets Greenwood Holdings II, LLC, which, through its wholly-owned subsidiaries, owns a pellet production plant in Greenwood, SC from its sponsor for cash consideration of US$132.0 million and the assumption of a US$40.0 million third-party promissory note bearing interest at 2.5 percent per year.
The Greenwood plant has been operating since 2016 and its pellets are exported through Enviva’s terminal at the Port of Wilmington, NC. Enviva plans to invest US$28.0 million to expand the Greenwood plant’s annual production capacity to 600 000 tonnes by the end of 2021, subject to receiving the necessary permits.
To support Enviva during its completion of the expansion project, the sponsor has agreed to (i) waive certain management services and other fees that otherwise would be owed by the Enviva through December 31, 2021, and (ii) continue to waive certain management services and other fees that otherwise would be owed by Enviva if the Greenwood plant’s actual production volumes are lower than expectations.
The sponsor also has agreed to reimburse Enviva for any construction costs incurred for the planned expansion in excess of US$28.0 million. Enviva expects the Greenwood acquisition to close on or about July 1, 2020.
Assigned off-take contracts to Japan
The Greenwood acquisition also includes the assignment of five firm, long-term, take-or-pay off-take contracts with creditworthy Japanese counterparties, aggregate annual deliveries of 1.4 million tonnes, and a total revenue backlog of US$5.3 billion. These include:
- A 15-year, take-or-pay off-take contract to supply Sumitomo Corporation with approximately 250 000 tonnes-per-annum (tpa) with deliveries expected to commence in 2021;
- An 18-year, take-or-pay off-take contract to supply Sumitomo Corporation with 440 000 tpa with deliveries expected to commence in 2022;
- A 17-year, take-or-pay off-take contract to supply Suzukawa Energy Center Ltd with 340 000 tpa with deliveries expected to commence in 2022;
- A 10-year, take-or-pay off-take contract to supply Mitsubishi Corporation with 210 000 tpa with deliveries expected to commence in 2022;
- An 18-year, take-or-pay off-take contract to supply Sumitomo Forestry Co., Ltd with 150 000 tpa with deliveries expected to commence in 2023.
Including the Greenwood associated off-take contracts and the acquired Georgia Biomass contracts, Enviva’s total weighted-average remaining term of off-take contracts will increase from 11.4 years to 12.7 years and total product sales backlog will increase from US$10.2 billion to US$15.5 billion, on a pro forma basis as of April 1, 2020.
Furthermore, with these contracts, the production from both pellet plants is expected to be fully contracted through to 2035.
For the Greenwood acquisition, Evercore served as exclusive financial advisor and Baker Botts LLP served as legal counsel to the conflicts committee of the board of directors of Enviva while Vinson & Elkins LLP served as legal counsel to the sponsor. For the Georgia Biomass acquisition, Vinson & Elkins LLP served as legal counsel to Enviva.
