Alto Ingredients, Inc. Debt Disclosure

9.

DEBT.

 

Long-term borrowings are summarized as follows (in thousands):

 

		December 31, 2023				December 31, 2022
Kinergy line of credit		$	30,690			$	18,076
Orion term loan			60,000				60,000
			90,690				78,076
Less unamortized debt discount			(3,893	)			(4,686	)
Less unamortized debt financing costs			(4,700	)			(5,034	)
Less current portion			—				—
Long-term debt		$	82,097			$	68,356

 

Kinergy Line of Credit – Kinergy has an operating line of credit for an aggregate amount of up to $100,000,000. The line of credit matures on November 7, 2027. The credit facility is based on Kinergy’s eligible accounts receivable and inventory levels, subject to certain concentration reserves. The credit facility is subject to certain other sublimits, including inventory loan limits. Interest accrues under the line of credit at a rate equal to (i) the daily Secured Overnight Financing Rate, plus (ii) a specified applicable margin ranging between 1.25% and 1.75%. The applicable margin was 1.25%, for a total rate of 6.74%, at December 31, 2023. The credit facility’s monthly unused line fee is an annual rate equal to 0.25% to 0.375% depending on the average daily principal balance during the immediately preceding month. Payments that may be made by Kinergy to the Company as reimbursement for management and other services provided by the Company to Kinergy are limited under the terms of the credit facility to $1,500,000 per fiscal quarter. The credit facility also includes the accounts receivable of Alto Nutrients as additional collateral. Payments that may be made by Alto Nutrients to the Company as reimbursement for management and other services provided by the Company to Alto Nutrients are limited under the terms of the credit facility to $500,000 per fiscal quarter. Kinergy and Alto Nutrients may also make distributions to the Company of up to 75% of their excess cash flow.

 

If the monthly excess borrowing availability of Kinergy and Alto Nutrients falls below certain thresholds, they are collectively required to maintain a fixed-charge coverage ratio (calculated as a twelve-month rolling earnings before interest, taxes, depreciation and amortization divided by the sum of interest expense, capital expenditures, principal payments of indebtedness, indebtedness from capital leases and taxes paid during such twelve-month rolling period) of at least 1.1 and are prohibited from incurring certain additional indebtedness (other than specific intercompany indebtedness).

 

The obligations of Kinergy and Alto Nutrients under the credit facility are secured by first-priority security interests in all of their assets in favor of the lender. Alto Ingredients has guaranteed all of Kinergy’s obligations under the line of credit. As of December 31, 2023, Kinergy had $33.3 million in unused borrowing availability under the credit facility.

 

Orion Term Loan – On November 7, 2022, the Company entered into a credit agreement with certain funds managed by Orion Infrastructure Capital (collectively, the “Lenders”), and OIC Investment Agent, LLC, as administrative agent and collateral agent (“OIC”), under which the Lenders agreed to extend a senior secured credit facility in the amount of up to $125,000,000 (the “Term Loan”). The Term Loan is secured by a first priority lien on certain assets of the Company and a second priority lien on certain assets of Kinergy and Alto Nutrients.

 

The Lenders agreed to advance to the Company up to $100,000,000, with up to an additional $25,000,000 upon the satisfaction of certain conditions. The Company also agreed to issue to the Lenders upon its first funding request, an aggregate of 1,282,051 shares of the Company’s common stock, and up to an additional 320,513 shares of the Company’s common stock upon additional funding or fundings.

 

On November 23, 2022, the Company received its initial funding of $60,000,000 and issued 1,282,051 shares of common stock. As of December 31, 2023 and 2022, the principal amount outstanding under the Term Loan was $60,000,000. The Company allocated $3,912,000 of the loan proceeds to additional paid-in capital for the common stock issued based on the relative fair values of the debt and equity instruments and recorded a corresponding amount as a debt issuance discount that will be amortized to interest expense over the term of the loan.

 

Interest accrues on the unpaid principal amount of the Term Loan at a fixed rate of 10% per annum. The Term Loan matures on November 7, 2028, or earlier upon acceleration.

 

The Company must prepay amounts outstanding under the Term Loan on a semi-annual basis beginning with the six-month period ended December 31, 2023 in an amount equal to a percentage of the Company’s excess cash flow based on a specified leverage ratio, as follows: (i) if the leverage ratio is greater than or equal to 3.0x, then the mandatory prepayment amount will equal 100% of the Company’s excess cash flow, (ii) if the leverage ratio is less than 3.0x and greater than or equal to 1.5x, then the mandatory prepayment amount will equal 50% of the Company’s excess cash flow and (iii) if the leverage ratio is less than 1.5x, then the mandatory prepayment amount will equal 25% of the Company’s excess cash flow.

 

The terms and conditions of the Term Loan also contain customary and other representations, warranties, covenants and obligations, including events of default, and other terms and conditions.

 

Registration Rights Agreement - On November 7, 2022, the Company entered into a registration rights agreement with the Lenders and agreed to register for resale with the Securities and Exchange Commission the shares of common stock issued to the Lenders under the Term Loan. The related registration statement has been declared effective by the Securities and Exchange Commission.

 

CARES Act Loans – On May 4, 2020, Alto Ingredients and Alto Pekin, received loan proceeds from Bank of America, NA under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES Act”), through the Paycheck Protection Program administered by the U.S. Small Business Administration (“SBA”). Alto Ingredients received $6.0 million and Alto Pekin received $3.9 million in loan proceeds. Under the terms of the loans, certain amounts may be forgiven if they are used for qualifying expenses as described in the CARES Act. In June 2021, the SBA approved Alto Pekin’s forgiveness application for the full amount of $3.9 million. In September 2021, the SBA approved Alto Ingredients’ forgiveness application for the full amount of $6.0 million. As a result, the Company recognized income from loan forgiveness of $9.9 million for the year ended December 31, 2021. The SBA may audit the loan forgiveness applications and further examine eligibility for forgiveness, including the facts and circumstances existing at the time the loans were made. The Company can provide no assurance that any loan forgiven will not require repayment following an audit by the SBA.

 

Maturities of Long-term Debt – The Company’s long-term debt matures as follows (in thousands):

 

December 31:
2027			$	30,690
2028				60,000
			$	90,690