Developer USA Synthetic seeks bankruptcy protection, asset sale approval

USA Synthetic Fuel Corp., which has for years been developing a power plant in Ohio that was initially to be fired by syngas and then more recently by regular natural gas, on March 17 sought Chapter 11 protection at the U.S. Bankruptcy Court for the District of Delaware and immediately sought court permission to sell assets.

Steven Vick, the chief executive officer and president of USA Synthetic Fuel (USASF), said in first-day testimony: “The Debtors are an environmentally focused, development stage energy company pursuing low-cost, clean energy solutions through the deployment of proven Ultra Clean Btu Converter technology. Ultra Clean Btu Converter technology is a commercially proven process that cost-effectively converts lower-value solid hydrocarbons, such as coal, into higher-value energy products, such as Ultra Clean Synthetic Crude, which can be refined into a variety of fuels, such as diesel, jet, and gasoline.”

The planned power plant in Lima, Ohio, was initially to be fired with syngas from the gasification of petroleum coke, with coal as a backup feedstock. The company even bought coal reserves in nearby Indiana as a backup feedstock source for the Ohio project. More recently the company wanted to fire the power plant with regular natural gas, and to produce the liquid products from a gasification project at the same site. The company also controls coal reserves in the Powder River Basin in Wyoming where it planned to build a minemouth gasification facility to produce liquid products.

Vick wrote: “The Debtors have taken numerous steps to turn the Lima Energy Project into a reality. The Debtors negotiated engineering, procurement, construction, and related contracts to build the Ultra Clean Btu Converter facility and have obtained all the permits necessary to commence construction of the Ultra Clean Btu Converter. Furthermore, the Debtors negotiated various contracts for their future production of Ultra Clean Synthetic Crude, including a contract with a major energy company for the purchase of 100% of the Debtors’ future output of Ultra Clean Synthetic Crude from the first phase of the Lima Energy Project with an option to purchase up to 100% of the second phase. In addition, the City of Lima obtained approximately $70 million in civic infrastructure investment that benefited the Debtors’ Lima site. With these funds the City of Lima constructed a railroad grade separation to facilitate cross-city traffic during railroad deliveries of the Debtors’ feedstock and built a reservoir with sufficient capacity to meet the expected water needs of the Lima Energy Project.

“In 2014, the Debtors were preparing to launch a $700+ million bond and equity offering to, among other things, cover the substantial costs of constructing the Debtors’ first Ultra Clean Btu Converter on the Lima site and refinance the TEC Prepetition Indebtedness. However, and as discussed further below, the Debtors suspended the bond and equity offering following (i) the Debtors’ failure to make certain payments under the TEC Prepetition indebtedness as a result of the Debtors’ liquidity issues, (ii) mounting liabilities to employees, tax authorities, professional advisors, and various vendors, (iii) TEC’s appraisal of the Debtors’ Coal Asset, and (iv) the initiation of an investigation by the U.S. Securities and Exchange Commission into the Debtors’ accounting practices and internal controls between 2011 and 2013 (the “SEC Investigation”).”

Vick said lender Third Eye Capital Corp. (TEC) is backing this Chapter 11 filing. In a March 17 motion, USA Synthetic asked the court for approval of a “stalking horse” asset purchase agreement entered into by USASF and project subsidiary Lima Energy as sellers, and Third Eye Capital as the stalking horse buyer. There would be an auction held to see if any party can top the Third Eye Capital offer. The sale motion indicates that the assets to be sold include those in Lima for the project there, and other “Coal Assets.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.