Date: 07-17-2019

Braidy Industries must raise $300M in 4 months or risk losing $100M from Russian company

Braidy Industries has about four months to raise $300 million in equity capital to help finance a $1.7 billion aluminum rolling mill in Eastern Kentucky — or risk losing a sizable investment it already has secured, new records show.

In a U.S. Securities and Exchange Commission filing made this week, Braidy Industries detailed its agreement with United Co. Rusal, the Russian aluminum company with ties to Russian oligarch Oleg Deripaska, an ally of Vladimir Putin.

The company recently announced plans to invest $200 million in Braidy’s planned aluminum rolling mill. 

Rusal — which was under U.S. sanctions until earlier this year — went public in April with its intention to buy a 40% stake in the Kentucky-based mill, which is slated to eventually produce aluminum sheet and plate for the automotive and aerospace industries.

On July 5, a subsidiary of Rusal’s called Allow Rolled Products LLC reached definitive agreements to invest $200 million into Braidy Atlas LLC, the subsidiary responsible for building the mill near Ashland, Kentucky, according to Braidy’s SEC filing.

The $200 million investment will be provided in phases.

Rusal’s subsidiary made an initial $60 million contribution last Friday and plans to provide an additional $5 million per month for eight months, the filing stated.

It intends to make a final, $100 million investment when certain conditions have been met, including an expectation that Braidy will have raised $300 million in cash (or secured commitments to provide those funds).

Rusal’s subsidiary can suspend or terminate its obligation to make the final, $100 million payment (or its monthly, $5 million installments) if Braidy has failed to secure its own $300 million contribution by the time they have surpassed the “fourth monthly anniversary” of the July 5 initial closing of the investment deal, the SEC filing said. 

In an emailed statement Tuesday, Braidy CEO and Chairman Craig Bouchard emphasized the progress his company has made so far, including a North American supply contract he said the company was awarded that same day for an unnamed global automaker.

“Our (SEC) filing demonstrates Braidy Industries has raised equity, binding commitments or signed letters of intent for the majority of capital required for this project. This includes investments from more than 800 investors, including main street Kentuckians,” Bouchard said. “Our progress building one of the largest mills in the world has gone faster than any project of this size in memory.”

Other notable changes that have occurred because of the deal with Rusal include:

Braidy Industries now owns 60% of Braidy Atlas (instead of its former 100% ownership stake).
Braidy Atlas’ board of directors now includes three members appointed by Braidy, including Bouchard, and two members appointed by Rusal’s subsidiary, including Lord Gregory Barker of Battle, the executive chairman of Rusal’s biggest stockholder, En+ Group.

A Rusal affiliate has entered into a 10-year supply agreement with Braidy Atlas to exclusively supply 200,000 metric tons per year of aluminum slab and primary aluminum ingots for Braidy’s planned mill.
Gov. Matt Bevin has been credited with attracting Braidy to Kentucky in 2017, when the company pledged to build the aluminum rolling mill.

Bevin also played a key role in the state government’s decision to invest $15 million in the company in return for an ownership stake and a promise to create more than 500 high-paying jobs in the economically struggling eastern region of the commonwealth.

Braidy still has to secure enough money to build the mill, though. It launched a major stock sale in September 2018 and has repeatedly extended the deadline as it works to raise roughly $500 million.

Braidy’s latest SEC filing includes other details about the company’s plans to finance the mill, which is now set to open in 2021.

Braidy expects it will need to raise the $300 million in equity capital before sufficient debt financing to help pay for the mill’s construction can be attained.

Although it’s in talks with “a number of global financial institutions to secure debt and lease financing” for that project, currently there are no binding debt commitments or financing arrangements, according to the Monday SEC filing.

The company is considering alternative financing sources to pay for the construction. It’s also “party to a non-binding letter of intent for up to $900 million in lease financing arrangements for equipment and other assets” for the mill, and Braidy Atlas is in talks to raise as much as $800 million in “project finance loans.”

In earlier SEC filings, Braidy repeatedly mentioned its plan to seek as much as $800 million from the federal government through the U.S. Department of Energy’s Advanced Technology Vehicles Manufacturing direct-loan program. However, this week’s new filing does not mention that program.

In his statement Tuesday, Bouchard said Braidy canceled its application for financing through that program after another party came forward with a better offer than the terms the Department of Energy proposed.

Here are some other highlights from Braidy’s latest SEC filing concerning its other aspects of its business plans:

Funding from Braidy is allowing one of its subsidiaries, Veloxint Corp., to “build out a leased research and development facility in Waltham, Massachusetts, and a scaled manufacturing facility in Kentucky” near the future mill’s site, but neither of those facilities is complete and operational.

Veloxint, which Braidy acquired in March 2018, expects to start generating operating revenue in 2020 and has “a number of development agreements either signed or under negotiation,” the filing said. 
Braidy Atlas has developed a “milestone plan for cooperation” with the BMW Group related to the future supply of automotive aluminum sheet.

Braidy’s growth strategy includes making more acquisitions to accelerate the growth of Veloxint’s business, including acquiring companies that may be substantially larger than Braidy. Any such purchases could have impacts on Braidy, including the need to devote “substantial management time and attention” to negotiating and executing such deals and integrating any firms that are acquired — time and attention that “would otherwise be focused on constructing the Mill and operating Braidy Industries’ current business.”

By Morgan Watkins
Louisville Courier Journal