In California, Amyris (AMRS) announced that it has agreed on key business terms with Total for restructuring its fuels joint venture to open the way for proceeding with commercialization of its jet fuel technology over the coming years. Following the restructuring, Total would own 75% of the joint venture with Amyris.
In conjunction with this transaction, Amyris has also agreed on terms with Total and Temasek, another major stockholder of Amyris, under which, and as part of a plan to strengthen the balance sheet, these stockholders would exchange an aggregate of $138 million of convertible debt for Amyris common stock at a price of $2.30 per share, with an additional $37 million of outstanding convertible debt being restructured to eliminate Amyris’s repayment obligation at maturity and provide for mandatory conversion to Amyris common stock.
Customers, ASTM on board
In September 2014, KLM tipped that it intended to fly on Amyris-Total renewable jet fuel, as soon as it receives favorable advice from their independent Sustainability Advisory Board. Amyris noted that is producing commercial product “for our launch partners (which include GOL), and that a 10% blend of Amyris-Total jet fuel can reduce about 3% of the particulate matter from aircraft engine exhaust.”
Last November, news filtered out of California that ASTM has revised the D7566, the Standard Specification for Aviation Turbine Fuel Containing Synthesized Hydrocarbons to include the use of renewable farnesane as a blending component in jet fuels for commercial aviation.
With that news, Amyris and Total said that they will now prepare to market a drop-in jet fuel that contains up to 10% blends of renewable farnesane.
Reaction from The Street
Cowen & Company’s Jeffrey Osborne wrote:
This conversion has a tangible effect on the ownership stake that both Total and Temasek has in the company. According to Thomson the companies own a combined ~24 million shares, which is around 30% of current shares outstanding. With the creation of 60 million additional shares, the combined ownership of Total and Temasek would be 84 million, or 60% of AMRS’ post-converted outstanding shares. We see this as confirmation that both companies see strong long-term potential for Amyris.
The reduction of convertible debt also improves Amyris’ balance sheet. Total debt, including a current portion of $18 million, was $242.5 million as of March 31, 2015. Upon the conversion of $175 million in debt the company will have reduced its total debt by 72% to $67.5 million. This should give Amyris greater flexibility as the commercialization of its various products continues to gain traction.
We see both of these updates as signaling a strong fundamental change in the company’s financial standing, as well as a solid validation of the viability of its jet fuel bioproduct. The terms of the restructuring are subject to standard closing procedures, including any approvals from the board or other internal requirements, as well as regulatory approvals.
Raymond James’ Pavel Molchanov wrote:
In aggregate, [it’s] $175 million of debt relief, equating to 72% of the company’s total debt burden as of 1Q15. If only Greece was able to get a deal like that! Naturally, there is no free lunch, and Amyris is giving up some future project economics. Specifically, Total will own 75% of the fuels joint venture with Amyris, up from the previously envisioned 50/50 split. But since this JV does not entail any meaningful revenue now, or even for the foreseeable future, Amyris gets the full deleveraging benefit upfront, with reduced JV economics only out in the distant future.
* In conjunction with this, Total has confirmed that it will proceed with commercialization of jet fuel under the JV. There is no real detail yet as far as the timetable, capital investment plans, or what the target economics might look like – all of those remain important question marks that will need to be addressed by management in due course. But it’s still a surprising move on the part of Total – surprisingly bullish, that is – considering the context of the oil and gas industry’s current period of austerity…Nonetheless, as a practical matter, we wouldn’t expect any production scale-up until around 2020, so it’s far too early for us to change estimates.