Revenue Bonds for Origin Materials Geismar Facility on LSBC's December Agenda

A week from today, the Louisiana State Bond Commission will convene for its December meeting. They are set to review applications from local parishes, municipalities, and other subdivisions requesting the authority to incur debt or levy taxes. All projects are reviewed for legal requirements and feasability, specifically the ability to repay indebtedness incurred. As expected, the final approval for revenue bonds to finance the construction of Origin Materials' O2 facility in Geismar, LA is on the agenda:


A couple of things stick out to me. For one, the "I" after the Origin US Megasite implies there are several other large facilities planned. This is not really news, but this is the first concrete example of it mentioned outside an investor presentation. 


So, getting back to the bonds. The cap is set at $1.5 billion, while the company had previously disclosed a preliminary approval of $400 million. Pending final approval, that's 3.75x the amount originally announced. The funding forecast from June 2021, which has yet to be updated, puts O2 capital expenditures at $1.072 billion.


The footnotes do reference contingencies for cost overruns, which may explain why the proposed amount for the revenue bonds has an extra $400 million. Regardless, the company is one step closer to securing project financing.

The interest rates set forth, 12% if tax-free and 14% for taxable bonds, are much higher than actual market rates. Currently, investment grade yields are about 6-7% and junk yields around 8-10% and the current market reflects current expectations of Fed monetary policy. Furthermore, the proposed authorization of revenue bonds for O2 would set the maximum maturity for the bonds at 40 years. At this point, it's unclear if the company will issue tax-exempt or taxable bonds. 

On December 15, 2022, the State Bond Commission will make their decision. It should be noted that Louisiana Governor John Bel Edwards is on the bond committee and has already expressed his seal of approval to the project, as it aligns with his administration's agenda:


In addition to the Tweet, his office issued a formal press release on the same date, with the same affirmative message. While it's not a done deal and we still have to wait for a final decision next week, it seems that the leadership of Louisiana is throwing its support to Origin Materials.

Shares of Origin Materials (NASDAQ: ORGN) closed slightly green, essentially flat, today with a massive volume spike at 2:50pm.


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