There are a lot of good project finance firms out there, and a lot of good firms that do M&A transactions. And there are some firms that understand petrochemical projects. But there are very few firms that can bring all of that together under one roof. We can.
Late last year, a long-running effort to build a state-of-the-art anhydrous ammonia plant at an industrial chemical site in Texas City, Texas, reached a major milestone.
Gulf Coast Ammonia LLC (GCA) closed on an approximately $570 million non-recourse project financing, as well as an equity commitment from joint venture partners Starwood Energy Group Global LLC (Starwood) and Mabanaft GmbH & Co. KG (Mabanaft). With its financing in place, GCA can now move forward on constructing a facility that will produce approximately 1.3 million tons of ammonia per year.
GCA’s ammonia facility, which is set to commence commercial operations in the first half of 2023, will be the world’s largest single-train ammonia synthesis loop, and will raise the bar for the safe and efficient production and storage of ammonia.
That’s not the only way GCA is breaking new ground. The ammonia facility marks the first new production plant to be constructed in Texas City in decades. GCA is expected to provide major benefits to the local economy in Galveston County, generating more than 40 permanent jobs and more than 1,000 construction jobs.
GCA’s ability to advance to this stage owes much to the efforts of Agrifos Partners LLC (Agrifos), the original developer of the project. Some eight years ago, Agrifos embarked on a journey to develop a world-class ammonia plant along the Texas Gulf Coast. Agrifos would go on to partner with Macquarie Capital and with Mabanaft, a German energy trading company.
But also playing an important role over the past five years was a team of lawyers from V&E, which represented GCA as both project counsel and borrower’s counsel.
Led by partners Kaam Sahely and Alan Alexander, V&E lawyers advised on all aspects of the project’s development, including the negotiation of major real estate, construction, and commercial contracts. V&E partner Karen Smith and senior associate Simone King led the negotiations on the debt financing, and partner Creighton Smith and senior associate Nettie Downs advised on the equity process.
In addition, V&E counsel Beto Cardenas represented GCA in obtaining local tax incentives.
“The V&E team in Houston and NYC, led by Kaam and Alan, were instrumental in helping to steer the development of the GCA project company to a positive final investment decision and project financing, and we greatly appreciate their contribution to our success thus far,” said Ken Koye, GCA CEO and managing director.
V&E leverages its broad experience in project development
GCA benefitted from the V&E lawyers’ extensive experience in advising on all aspects of complex industrial projects.
“There are a lot of good project finance firms out there, and a lot of good firms that do M&A transactions. And there are some firms that understand petrochemical projects,” Alexander said. “But there are very few firms that can bring all of that together under one roof. We can.”
Over the course of GCA’s development phase, Alexander was able to consult with his V&E colleagues across practices. Having experienced project finance lawyers on hand, for instance, allowed Alexander to ensure that various aspects of the project were financeable and that appropriate provisions were written into contracts.
“It was highly beneficial to the client,” Smith said. “If your client is the developer of a project, the greatest negotiating leverage they have is during the negotiation of the contract. Once it’s been signed or is close to execution, if you’ve got to come back and ask for some major change or amendment, you’re in a much worse position than had you asked for it when you started.”
Producing efficient results
Thanks to V&E’s extensive experience working on large-scale projects, the team was able to work efficiently, saving the client time and money.
“We’re a very large cohesive team, and it’s the same team that works together often,” Smith said. “So, we’re very accustomed to knowing how long it takes someone to get back to us, what they need to read, and how involved we need to be in each of the project documents.”
“We take a very commercial approach to transactions,” Smith added. “Not every comma matters. You need to identify what’s important, cut a deal, and get to a closing.”
Overcoming challenges and closing a major deal
The V&E team was able to overcome hurdles along the way.
In an unusual twist for projects of this scale, the new equity partner in the transaction – Starwood – arrived late in the game. As a result, Smith and King found themselves having to make some assumptions about a future owner’s objectives when negotiating with lenders.
“We overcame that challenge based on our institutional knowledge and our experience in doing these kinds of deals,” King said. “We were able to utilize that background to move the deal forward.”
Alexander faced a major challenge of his own. On December 29, as a December 31 deadline to close the transaction approached, the client was stuck as to how to resolve the last few open issues. Alexander talked through the issues with the client, and he recommended scheduling a 9 a.m. call with Starwood for the following day.
By the end of the day, the parties had come to an agreement and the deal closed.
“A good lawyer can give good advice, but a really good lawyer can, at the same time, counsel a client who might be a little bit hesitant to go ahead and make a decision,” Alexander said. “You can help them see through all the pros, the cons, and the risks, and help them weigh them. And if you can help that client make a decision, that’s when I think we’re really doing our job.”
How does Alexander feel now that the project he has worked on for years is finally becoming a reality?
“The overwhelming feeling on December 30 was a sense of relief,” he said. “In the days and weeks that have passed since, it has become more of a sense of pride.”