Enviva Partners, Lp
UPDATE 1: Enviva’s Munis Trade Down Following Corporate Sell-Off
Wed 05/24/2023 14:22 PM
UPDATE 1: 2:23 p.m. ET 5/24/2023:
Yesterday, May 23, Enviva’s $250 million 6% Series 2022 exempt facilities revenue bonds due July 2052 traded with $4.5 million in volume at a high price of 70.5 and a low price of 70.25, according to secondary trading data on EMMA. The previous institutional trade was on Feb. 7 at 90.125 on $1 million in volume. The bonds were issued at par to yield 6% in July 2022.
Enviva’s $750 million in 6.5% senior notes issued in December 2019 also traded yesterday with $4.2 million in volume, at a weighted average price of 79.125 for a yield of 16.572%, according to data on Bondticker. The corporate bonds had traded down following the company’s financial performance for the quarter ending March 31, but the municipal bonds remained illiquid. On May 11, the corporate bonds traded in $500,000 in volume on Thursday, May 11, at a weighted average price of 73.8 for a yield of 19.508% as reported.
--Hoa P. Nguyen
Original Story 1:38 p.m. UTC on May 15, 2023
Enviva’s Earnings Spark Selloff in Corporate Bonds, Creating Spread Diversion With Munis
Relevant Documents:
Q1 Earnings’ Presentation - May 2023
Investor Day Presentation - April 2023
Annual Financial Disclosures Posted March 3, 2023
Enviva Inc.’s capital structure sold off after it reported financial results for the first quarter that were weaker than expected - except for the company’s municipal bonds, according to market sources. While illiquid, current valuations mark them with much tighter credit spreads than the corporate debt, the sources said.
This could prove important for the company, which anticipates a cash burn as it ramps up construction of new property, plant and equipment, the sources said. In an April investor presentation, the company noted that it could issue an additional $275 million of municipal bonds to complete funding on its facility in Bond, Miss.
A spokesperson for Enviva, however, told Reorg that the company expects that it would need “significantly less borrowing” than its remaining capacity from the inducement for the Mississippi plant, following the increased liquidity that was announced along with first-quarter earnings. More specifically, the company said it would eliminate its quarterly dividend to help it retain $1 billion in incremental cash from from 2023 to 2026.
Enviva Inc., a renewable energy company that produces wood pellets for fuel, has seen little change in its municipal debt despite recent plunges in its corporate bonds, which have been trading in the 70s for the past several weeks. Its stock price has also plummeted to about $8, for a market cap of $682 million, down from $21, right before the company released its first-quarter earnings on May 4.
The yield to the mandatory put date of July 15, 2032, for its tax-exempt Series 2022 green bonds, issued by the Industrial Development Authority of Sumter County, Alabama, is 7.8%, with a spread of 555 bps and a price of 88.3 cents on the dollar. Similarly, the yield to the mandatory put date of July 15, 2032, for its tax-exempt Series 2022 green bonds, issued by the Mississippi Business Finance Corp., is 7.6%, with a spread of 535 bps and a price of 100.8 cents on the dollar, according to market sources.
However, Enviva’s $750 million in 6.5% senior notes issued in December 2019 last traded in $500,000 in volume on Thursday, May 11, at a weighted average price of 73.8 for a yield of 19.508%, according to data on Bondticker. The spread to the Treasury was 1,594 bps as of May 11. In March, the bonds traded in the 90s with yields hovering around 9%.
The valuation services that provide marks for illiquid municipal bonds do not look at trading in affiliated corporate debt when determining valuations for municipal investments, said the market sources.
While undergoing a cash burn, Enviva might tap the municipal bond market if investors are amenable, said the sources. Enviva issued two municipal bonds in 2022. The second was originally slated for September but was pushed to later in the year because of market conditions.
The near term can be an opportune time for high-yield deals to come to the market, since supply has been low for high-yield munis as it has been with investment-grade munis. The market is entering a period where demand for munis will be strong as a result of seasonally higher redemptions and coupons, said the sources. In April, the high yield index generated 0.6%, bringing the year-to-date return to 3.3%, according to a May 5 Barclays report.
Enviva reported first-quarter EBITDA of $3.4 million, down from management guidance of roughly $45 million and down from $46.3 million in the year-earlier period, according to the company’s earnings report. However, the company hopes to generate annual EBITDA of $225 million by year-end, up from reported 2022 adjusted EBITDA of $155.2 million. The company said it is on a “pathway to achieve more than $500 million of adjusted EBITDA in 2026.”
The five-year forecast entails the successful completion of multiple projects for which it will rely on financing, said market sources. In 2023 alone, the company anticipates $365 million to $415 million of total capital expenditures and $45 million of interest payments. As a result of capex and interest expense that exceeds forecast annual EBITDA, the company’s liquidity will fall to $450 million at year-end from $634 million as of March 31, according to the quarterly company presentation.
Enviva’s credit rating has also taken a hit due to significant reduction in first-quarter earnings and fiscal year 2023 projections. The company was downgraded to B+ from BB- by both Fitch with a negative outlook earlier in May and by S&P Global Ratings with a stable outlook in late April.
Enviva’s new greenfield plants could qualify for “Advanced Energy Projects” under section 48C of the Inflation Reduction Act, which could result in tax credits of 6% to 30% of total capital investment costs should Enviva issue new project financing.
As of March 31, Enviva reported a total long-term debt of approximately $1.4 billion. The capital structure is detailed as follows:
--Hoa P. Nguyen, Seth Brumby
Yesterday, May 23, Enviva’s $250 million 6% Series 2022 exempt facilities revenue bonds due July 2052 traded with $4.5 million in volume at a high price of 70.5 and a low price of 70.25, according to secondary trading data on EMMA. The previous institutional trade was on Feb. 7 at 90.125 on $1 million in volume. The bonds were issued at par to yield 6% in July 2022.
Enviva’s $750 million in 6.5% senior notes issued in December 2019 also traded yesterday with $4.2 million in volume, at a weighted average price of 79.125 for a yield of 16.572%, according to data on Bondticker. The corporate bonds had traded down following the company’s financial performance for the quarter ending March 31, but the municipal bonds remained illiquid. On May 11, the corporate bonds traded in $500,000 in volume on Thursday, May 11, at a weighted average price of 73.8 for a yield of 19.508% as reported.
--Hoa P. Nguyen
Original Story 1:38 p.m. UTC on May 15, 2023
Enviva’s Earnings Spark Selloff in Corporate Bonds, Creating Spread Diversion With Munis
Relevant Documents:
Q1 Earnings’ Presentation - May 2023
Investor Day Presentation - April 2023
Annual Financial Disclosures Posted March 3, 2023
Enviva Inc.’s capital structure sold off after it reported financial results for the first quarter that were weaker than expected - except for the company’s municipal bonds, according to market sources. While illiquid, current valuations mark them with much tighter credit spreads than the corporate debt, the sources said.
This could prove important for the company, which anticipates a cash burn as it ramps up construction of new property, plant and equipment, the sources said. In an April investor presentation, the company noted that it could issue an additional $275 million of municipal bonds to complete funding on its facility in Bond, Miss.
A spokesperson for Enviva, however, told Reorg that the company expects that it would need “significantly less borrowing” than its remaining capacity from the inducement for the Mississippi plant, following the increased liquidity that was announced along with first-quarter earnings. More specifically, the company said it would eliminate its quarterly dividend to help it retain $1 billion in incremental cash from from 2023 to 2026.
Enviva Inc., a renewable energy company that produces wood pellets for fuel, has seen little change in its municipal debt despite recent plunges in its corporate bonds, which have been trading in the 70s for the past several weeks. Its stock price has also plummeted to about $8, for a market cap of $682 million, down from $21, right before the company released its first-quarter earnings on May 4.
The yield to the mandatory put date of July 15, 2032, for its tax-exempt Series 2022 green bonds, issued by the Industrial Development Authority of Sumter County, Alabama, is 7.8%, with a spread of 555 bps and a price of 88.3 cents on the dollar. Similarly, the yield to the mandatory put date of July 15, 2032, for its tax-exempt Series 2022 green bonds, issued by the Mississippi Business Finance Corp., is 7.6%, with a spread of 535 bps and a price of 100.8 cents on the dollar, according to market sources.
However, Enviva’s $750 million in 6.5% senior notes issued in December 2019 last traded in $500,000 in volume on Thursday, May 11, at a weighted average price of 73.8 for a yield of 19.508%, according to data on Bondticker. The spread to the Treasury was 1,594 bps as of May 11. In March, the bonds traded in the 90s with yields hovering around 9%.
The valuation services that provide marks for illiquid municipal bonds do not look at trading in affiliated corporate debt when determining valuations for municipal investments, said the market sources.
While undergoing a cash burn, Enviva might tap the municipal bond market if investors are amenable, said the sources. Enviva issued two municipal bonds in 2022. The second was originally slated for September but was pushed to later in the year because of market conditions.
The near term can be an opportune time for high-yield deals to come to the market, since supply has been low for high-yield munis as it has been with investment-grade munis. The market is entering a period where demand for munis will be strong as a result of seasonally higher redemptions and coupons, said the sources. In April, the high yield index generated 0.6%, bringing the year-to-date return to 3.3%, according to a May 5 Barclays report.
Enviva reported first-quarter EBITDA of $3.4 million, down from management guidance of roughly $45 million and down from $46.3 million in the year-earlier period, according to the company’s earnings report. However, the company hopes to generate annual EBITDA of $225 million by year-end, up from reported 2022 adjusted EBITDA of $155.2 million. The company said it is on a “pathway to achieve more than $500 million of adjusted EBITDA in 2026.”
The five-year forecast entails the successful completion of multiple projects for which it will rely on financing, said market sources. In 2023 alone, the company anticipates $365 million to $415 million of total capital expenditures and $45 million of interest payments. As a result of capex and interest expense that exceeds forecast annual EBITDA, the company’s liquidity will fall to $450 million at year-end from $634 million as of March 31, according to the quarterly company presentation.
Enviva’s credit rating has also taken a hit due to significant reduction in first-quarter earnings and fiscal year 2023 projections. The company was downgraded to B+ from BB- by both Fitch with a negative outlook earlier in May and by S&P Global Ratings with a stable outlook in late April.
Enviva’s new greenfield plants could qualify for “Advanced Energy Projects” under section 48C of the Inflation Reduction Act, which could result in tax credits of 6% to 30% of total capital investment costs should Enviva issue new project financing.
As of March 31, Enviva reported a total long-term debt of approximately $1.4 billion. The capital structure is detailed as follows:
- $105 million SOFR+4% senior secured term loan facility due June 2027;
- $156 million outstanding on its $570 million RCF borrowing under a senior secured credit facility maturing in June 2027, bearing either a term SOFR rate or at a base rate at Enviva’s option, plus an applicable margin;
- $750 million in aggregate principal amount of 6.5% senior unsecured notes due January 2026;
- $250 million in principal amount of 6% tax-exempt facilities revenue bonds Series 2022 issued by the Industrial Development Authority of Sumter County, Alabama, maturing in July 2052 (proceeds were loaned to the company under a loan and guaranty agreement constituting a senior unsecured obligation);
- $100 million in principal amount of 7.75% tax-exempt facilities revenue bonds Series 2022 issued by the Mississippi Business Finance Corp., maturing in July 2047 (proceeds were loaned to the company under a loan and guaranty agreement constituting a senior unsecured obligation);
- $31.4 million in qualified new markets tax credit loans at a weighted average interest rate of 2.9%, maturing in June 2029; and
- $8.8 million in 2.5% promissory note matured in February 2023.
--Hoa P. Nguyen, Seth Brumby
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