Catalyst research discussed at Panama event

By | May 01, 2006
The Biodiesel Finance and Investment Summit, which was held Feb. 26-27 in New York City, brought together leading project developers, investors, lenders, EPC contractors and others in the biodiesel finance and investment community to share their perspectives on the considerations involved in financing future biodiesel deals.

"A major concern was the overall cost of feedstocks and how small changes in pricing of feedstocks can reduce profitability, " said Todd Guerrero, organizer of the event and attorney for Lindquist and Vennum LLP, a corporate law firm based in Minneapolis. "The overall consensus was that a niche market does not an industry make, and that biodiesel needs to be more ubiquitous as a fuel."

Guerrero said private equity players seem cautious to invest major funds in such a fledgling industry. "Main Street money and rural investment is going to be a viable part of the biodiesel industry for several years to come," Guerrero said. "There were some pretty high rollers, and they are not ready to throw big capital into biodiesel. That message was pretty clear." With ethanol companies like U.S. BioEnergy being backed by major investment capital and the atmosphere of global ethanol, biodiesel will not be on this level for some time to come, Guerrero said.

"The most surprising thing is the level of interest in this industry given its small size, and over 200 people signed up from all sectors-equity, development, agriculture- in an industry that only produced 74 million gallons last year," said Chadbourne and Parke's Todd Alexander, who works out of the firm's Houston office and served as co-chair of the summit along with Guerrero. "This event was targeted at a more educated audience, who had more sophisticated questions to ask, who had a high level of interest in biodiesel and who had obviously spent some time learning about the industry."

Because the biodiesel tax credit was extended to 2008, annual biodiesel production is predicted to jump from 24 million gallons to over 1 billion gallons in just five years. If players could set firm deals now, they could be poised to see returns much higher than today's energy deals. At this point, the willingness of investors to take risks on biodiesel remains low, but interest from private equity is growing rapidly. "We are in a period of high returns for biodiesel producers, and when there is a time of high returns, the equity community gets very interested," Alexander said.

Other topics discussed included relationship building between farmers, developers and investors; the criteria that investors use when evaluating biodiesel proposals or mergers; and the sources, terms and structures of debt financing.

Most of all, the summit provided networking opportunities. "I met many potential clients [at the summit]," Alexander said. "I have already been retained by some of them."
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