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Sacramento Biosolids Facility

Success Stories
Sacramento Biosolids Facility

Westhoff, Cone & Holmstedt served as lead managing underwriter for solid waste disposal revenue bonds issued through the California Pollution Control Financing Authority ("CPCFA") for the Sacramento Biosolids Facility Project in December 2002. Synagro Organic Fertilizer Company of Sacramento, Inc., the Borrower ("Synagro"), financed construction and equipping of a biosolids dewatering and heat drying/pelletization facility providing service to the Sacramento Regional County Sanitation District (the "District"). Essentially, the project converts sewage sludge (biosolids) into pellets to be used as fertilizer.

The Synagro financing utilized a single special purpose corporation credit structure, because Synagro desired a financial structure with debt repayment that relied on the operation of and revenues derived from the project alone. Therefore, a Special Purpose Corporation was formed to be the Borrower. The sole assets would be the project and its contracts. Westhoff, Cone & Holmstedt successfully solicited and received two LOC commitments from banks, based on an option to pursue variable rate financing of the project. Ultimately, it was determined that a fixed rate structure would provide a greater benefit to the project, and two series of fixed rate debt bonds were sold that qualified for credit enhancement from an "A" rated guarantor, American Capital Access ("ACA"): $20,075,000 tax exempt bonds and $1,200,000 taxable bonds.

Synagro would not have realized the benefits of an "A" rating were it not for the expertise of Mr. Holmstedt in negotiating credit enhancement. He accomplished this by educating ACA as to the true creditworthiness of the project and the fact that the financing leveraged multiple layers of revenues and guarantees. This included negotiating a service contract with the District that contractually obligated the District to make payments based upon performance criteria. In order to mitigate construction risk associated with building the facility, the contractor was required to furnish a performance bond, and the Borrower provided a standby letter of credit covering liquidated damages in the event that construction of the project could not be started. Mr. Holmstedt pulled all of these terms together and designed a financing structure that met ACA's credit constraints while maximizing flexibility and profitability for the Borrower.