NewLife Forest Restoration LLC $196M Sustainability-Linked, Unrated Bond Deal to Price Jan. 27, According to Latest Supplement

The Arizona Industrial Development Authority will come to market with $195.98 million in revenue bonds on behalf of NewLife Forest Restoration LLC on or about Jan. 27, according to an updated preliminary offering statement.

Pricing was originally anticipated for Nov. 3, 2021, as reported. Goldman Sachs is underwriting the unrated deal. The bonds are “sustainability-linked” and will be used to acquire lumber and wood residuals processing facilities in Arizona, according to the offering statement.

This is the fourth supplement since the original preliminary offering statement was posted on Oct. 14, 2021. Since then, supplements 1 through 4 were posted on Nov. 1, 2021, Nov. 23, 2021, Jan. 7, 2022, and Jan. 18, 2022, respectively.

“I found with the fourth supplement the redemption prices and some other features are a bit more restrictive,” said Mohammed Murad, director of municipal credit research at PT Asset Management LLC, or PTAM. The Series 2022A bonds are subject to optional redemption on or after Jan. 1, 2023, with a redemption price of 140%. Murad noted that the previous supplement had a redemption price of 120%. Additionally, Murad pointed to sustainability-linked interest rate adjustments. If the company fails to meet its first and second sustainability performance targets by the end of fiscal year 2024, the interest rates payable on the bonds will increase by 150 basis points, according to the offering statement. In the previous supplements, the interest rates payable were set to increase by 50 basis points.

“With these revised covenants and prices, it doesn’t leave much room, a buffer, between the project getting constructed and completed, and anything to go wrong, like a change in price of lumber or labor costs being higher,” Murad said.

Credit positives include a lack of competition for supply of the fiber used in the processing facilities as well as present demand for the product through a 10-year offtake agreement, which is longer than the maturity of the bonds, Murad said.

The new issuance amount for the debt is larger than the $177.97 million originally proposed. The deal structure is as follows: $112.38 million in senior Series 2022A bonds and $83.61 million in subordinate Series 2022B bonds. Both tranches are federally taxable.

The most recent supplement contains changes to the terms of the bonds “based on feedback from potential investors” in addition to an updated base case and six stress case scenarios in the financial model, according to the offering statement.

The supplement contains an updated revenue fund waterfall, shown below:

–Anastasia Bergeron