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Cadiz Announces $255 Million in Construction Financing for Desert Water Project

Category : News

LA Business Journal, 5-2-17

By Howard Fine

With the Trump administration soon likely to approve its long-sought desert water storage and transmission project, Cadiz Inc. announced Tuesday it has arranged up to $255 million in construction financing from giant private equity firm Apollo Global Management.

Cadiz signed agreements with several funds managed by Apollo affiliates that will provide an immediate injection of $60 million, including $45 million to refinance senior secured mortgage debt and $15 million for initial construction expenditure.

Apollo affiliated funds have also conditionally committed $240 million in construction financing to complete the first phase of the Cadiz project, though in the announcement, Cadiz warned investors that this commitment is “highly conditional” and is not guaranteed to close.

Nonetheless, the financing package represents a significant milestone for Cadiz, the downtown water company that for the past 25 years has been trying to develop a water storage and sales project for an aquifer under its 45,000-acre holdings in the Cadiz Valley east of the 29 Palms Marine Corps Air Ground Combat Center in the Mojave Desert.

“Apollo is a leading sponsor of private project financing with a long track record of success,” Cadiz Chief Executive Scott Slater said in a statement. “We believe the Apollo Funds’ financing of the Cadiz water project will enable us to more readily customize contractual arrangements for the benefit of project participants and increase both the competitiveness and overall versatility of the project.”

Cadiz has signed agreements with six California water agencies to pump up to 50,000 acre-feet of water a year out of its aquifer and send it via pipeline to the Colorado River Aqueduct and then onto 400,000 customers of those water agencies. The plan received environmental approvals four years ago and survived numerous legal challenges from environmental groups that said pumping out groundwater would impact the desert ecosystem. The last of those challenges was exhausted last year when the state Supreme Court denied an appeal.

Environmental groups saw a new chance to challenge the project, however, when the federal Bureau of Land Management in October 2015 unexpectedly blocked Cadiz from receiving a ministerial approval for its pipeline, thus requiring another complete environmental review and several more years of waiting for a final Land Management determination.

But within days of taking office, President Donald Trump’s administration placed the Cadiz project on its priority list of infrastructure projects and then, last month, the Bureau of Land Management rescinded its decision to block the pipeline approval, clearing the way for the final government approval needed for the project.

That move spurred the construction finance agreement with Apollo Global Management, a behemoth New York private equity firm with $197 billion in assets under management as of March 31.

“We are excited by the unique opportunity to support Cadiz at this critical juncture,” Antoine Munfakh, a partner at Apollo Global Management, said in a statement. “As active infrastructure investors, we believe innovative projects, like Cadiz, can solve many of the important issues facing municipalities today. The project brings a reliable and vital new water resource and water storage option to the Southern California region,” he said.

Cadiz shares rose 80 cents or 5 percent to close Tuesday at $15.80 a share, close to its 52-week high of $15.90.

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Cadiz Inc. Announces Strategic Transaction with Apollo to Finance Cadiz Water Project Construction

Category : News

Funds affiliated with Apollo will provide $60M of capital to repay Cadiz Senior Secured Mortgage Debt of $45M and to provide $15M in construction capital, and will also provide a conditional commitment for up to an additional $240M in construction financing
May 2, 2017

(LOS ANGELES, CA) –Today, Cadiz Inc. [NASDAQ:CDZI] (“Cadiz”, the “Company”) is pleased to announce it has entered into a strategic transaction with funds affiliated with Apollo Global Management, LLC (together with its consolidated subsidiaries, “Apollo”) [NYSE: APO] to initiate financial arrangements for the construction and implementation of the Company’s Cadiz Valley Water Conservation, Recovery & Storage Project (“Cadiz Water Project” or the “Project”). In furtherance of the strategic transaction, funds managed by affiliates of Apollo (the “Apollo Funds”) and Cadiz executed a series of agreements that will replace and refinance Cadiz’s senior secured mortgage debt and provide $15M of new senior debt to fund immediate construction related expenditures. Apollo Funds also executed a conditional commitment letter to fund up to $240M in construction finance expenditures for the Cadiz Water Project, subject to the satisfaction of conditions precedent.

The Cadiz Water Project is a public-private partnership that in its initial phase will conserve and deliver a new, reliable water supply for 400,000 Californians every year without adverse environmental impacts. Phase 2 of the Project will build upon the foundation established in Phase 1 to enable the storage of up to 1M acre-feet of imported water and make possible the interconnection of Colorado River Aqueduct (“CRA”) and Northern California sources in a common groundwater storage program. Phase 1 is nearly shovel-ready and completing final regulatory permitting related to transportation of conserved water from Cadiz’s private property in the Mojave Desert to public water purveyors throughout the region via a 43-mile pipeline to be constructed in an active railroad right-of-way to the CRA. Construction of the Project is expected to create and support nearly 6,000 jobs.

“We are excited by the unique opportunity to support Cadiz at this critical juncture. As active infrastructure investors, we believe innovative projects, like Cadiz, can solve many of the important issues facing municipalities today. The Project brings a reliable and vital new water resource and water storage option to the Southern California region,” said Antoine Munfakh, a Partner at Apollo Global Management. “As one of the world’s leading private equity and alternative credit managers with more than 25 years of experience, we believe that in our capacity as a financing source to Cadiz, we can add value to help the Company progress this important Project.”

Apollo is a leading global alternative investment manager with approximately $197 billion of assets under management (as of March 31, 2017). Founded in 1990, Apollo has a demonstrated expertise in private capital investment opportunities across industries, asset classes, geographies, and capital structures with a focus on real estate and infrastructure development which includes an investment in CH2M Hill.

“Apollo is a leading sponsor of private project financing with a long track record of success,” Scott Slater, Cadiz CEO & President. “We believe the Apollo Funds’ financing of the Cadiz Water Project will enable us to more readily customize contractual arrangements for the benefit of Project participants and increase both the competitiveness and overall versatility of the Project.”

As a first step in the strategic transaction, the Apollo Funds entered into an agreement to provide $60M of capital to refinance Cadiz’s $45M senior secured mortgage debt and provide an initial $15M tranche of construction capital. The new $60M facility will accrue 8% annual interest, with 6% PIK and 2% paid quarterly in cash. The new credit agreement terms are definitive, yet subject to traditional conditions precedent, and the transaction is scheduled to close within 45 days. The conditional commitment for up to $240M is intended to provide the additional resources necessary to complete the construction of Phase I of the Cadiz Water Project. However, given that Cadiz is not obligated to accept such financing from Apollo, and, given the highly conditional nature of the commitment, investors in Cadiz should not place undue reliance on the closing of the $240M debt financing from Apollo.

“Regardless of the ultimate financing decision that is made for the Project, Cadiz’ securing of the support and involvement of Apollo enhances the relative strength of the team and gives us more options that improve the Project’s ability to move forward successfully.” said Dan Ferons, General Manager of Santa Margarita Water District, the lead agency in this innovative public-private partnership.

All documents and agreements related to the strategic transaction described in this press release have been filed today with the United States Securities and Exchange Commission on Form 8K. Investors in Cadiz are cautioned not to rely on the summary description of the $240M conditional commitment in the press release and are urged to refer to the full agreements and descriptions.

About Apollo

Apollo (NYSE: APO) is a leading global alternative investment manager with offices in New York, Los Angeles, Houston, Chicago, St. Louis, Bethesda, Toronto, London, Frankfurt, Madrid, Luxembourg, Singapore, Mumbai, Delhi, Shanghai and Hong Kong. Apollo had assets under management of approximately $197 billion as of March 31, 2017, in private equity, credit and real estate funds invested across a core group of nine industries where Apollo has considerable knowledge and resources. For more information about Apollo, please visit www.agm.com.

About Cadiz

Founded in 1983, Cadiz Inc. is a publicly-held renewable resources company that owns 70 square miles of property with significant water resources in Southern California. The Company maintains an organic agricultural development in the Cadiz Valley of eastern San Bernardino County, California and is partnering with public water agencies to implement the Cadiz Water Project, which over two phases will create a new water supply for approximately 100,000 Southern California families and make available up to 1 million acre-feet of new groundwater storage capacity for the region. Cadiz abides by a wide-ranging “Green Compact” focused on environmental conservation and sustainable practices to manage its land, water and agricultural resources. For more information, please visit www.cadizinc.com

FORWARD LOOKING STATEMENT: This release contains forward-looking statements that are subject to significant risks and uncertainties, including statements related to the future operating and financial performance of the Company and the financing activities of the Company. Although the Company believes that the expectations reflected in our forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Factors that could cause actual results or events to differ materially from those reflected in the Company’s forward-looking statements include the Company’s ability to maximize value for Cadiz land and water resources, the Company’s ability to obtain new financing as needed, the receipt of additional permits for the water project and other factors and considerations detailed in the Company’s Securities and Exchange Commission filings.

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OP-ED Cadiz plan a vetted project that will bring jobs, water security

Category : News

By Paul Granillo, Special to The Desert Sun (Op/Ed)

April 26, 2017

Earlier this month, the Interior Department reversed course on a controversial policy that blocked the development of much needed infrastructure, water and jobs in Southern California, including the Cadiz Valley Water Conservation, Recovery & Storage Project. The Cadiz Water Project is a public-private partnership of Cadiz Inc. and Southern California public water agencies that will capture and conserve groundwater presently lost to evaporation at Cadiz Inc.’s private agricultural property in the Mojave Desert and make it available as a new water supply for 400,000 Southern Californians.

The project would add up to 1 million acre-feet of new groundwater storage capacity to Southern California’s bankingportfolio. The construction and implementation of this privately financed project would create and support 5,900 jobs,including 600 jobs for veterans, and generate $6 billion in savings to Southern California ratepayers over 50 years.

Since the project was downsized and re-designed in 2009, the hydrology and geology of the Cadiz Valley aquifer system have been studied by independent experts, including former USGS officials. These studies were put out for public review by federal, state and local agencies in accordance with the stringent California Environmental Quality Act (CEQA). Project design  was limited in size and scope to avoid impacts to the desert environment and includes a comprehensive groundwater management plan with a firm “floor” on project operations. The county of San Bernardino approved and will enforce a strict groundwater management plan.

A project conveyance pipeline would be tucked into an existing railroad right-of-way (ROW) to avoid any impacts to nearby public lands. The project’s studies and review documents were approved by two public agencies, upheld in California Superior Court and sustained in the California Court of Appeal in 2016. Concerns and challenges raised by groups including the National Parks Conservation Association and Center for Biological Diversity were rejected by the courts.

In 2015, as construction was about to commence, the Bureau of Land Management’s (BLM) California office issued a controversial evaluation of the Cadiz Water Project. It said the proposed use of a railroad ROW for the project’s pipeline would need a new, separate permit. This finding was the first of its kind from the federal government, contrary to historical precedent that encouraged the use of railroad corridors for longitudinal infrastructure – fiber optic lines, gas and sewer lines – in order to protect federal lands from environmental impacts. Earlier this year, a bipartisan group in Congress requested that the BLM withdraw the previous administration’s policy and overturn the Cadiz evaluation. On March 1, the BLM responded by withdrawing the policy and is expected to address the Cadiz ROW request  soon.

Without a doubt, the desert is deserving of protection and care, so projects there require thoughtful review before proceeding. But this is not a case of avoidance of review, or no review at all; with Cadiz, review and approvals have been sought and granted over several years.

Indeed, and often ignored by opponents, in addition to the CEQA approvals received by this project in 2012, an earlier version of the project that would have been built on federal lands was reviewed and approved by BLM in 2002. The current calls for review of the railroad ROW by project opponents are not about better protecting the environment. Sadly, it’s simply a strategy to delay the water supply, storage capacity and jobs the project would  provide.

Email Paul Granillo, President & CEO of the Inland Empire Economic Partnership

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Cadiz water project counters inaccurate remarks by California Sen. Dianne Feinstein

Category : News

California Water News Daily 4-8-17

The Cadiz Valley Water Conservation, Recovery and Storage Project in the Mojave Desert have received a major boost from the Trump administration this week with the Bureau of Land Management’s (BLM) removal of two agency instructional memoranda, or IMs, that formed the basis of a 2015 review of the Cadiz project. A March 1 letter from a bipartisan group of Congressional members specifically requests that the BLM’s 2012 & 2014 policy framework on proposed uses of existing railroad corridors, or rights-of-way, be immediately withdrawn thereby setting the stage for not only the Cadiz project to move ahead but to uncloud a number of other infrastructure uses of these corridors.

At issue is the General Railroad Right-of-Way Act of 1875 and the project’s use of a right-of-way granted pursuant to the act. In 2009, US Department of the Interior issued a letter stating that the Project’s pipeline was within the scope of the right-of-way and could proceed without additional permits. However, in October 2015, after the Obama Administration issued the IMs, the BLM, an Interior agency, provided a summary evaluation to Cadiz stating that any use of an 1875 Act right-of-way would require federal permitting and environmental review, because its pipeline  did not originate from a railroad purpose. Cadiz was the first railroad tenant held to such a standard and the evaluation had a myriad of historical ramifications.

The reversal of this new policy and the 2015 Cadiz evaluation has been a priority of a bi-partisan group of members of Congress. In March, eighteen House Members from various Western States wrote to Interior to request a withdrawal of the IMs and the Cadiz evaluation,

“Aside from the unfairness of moving the goalposts on Cadiz, BLM’s arbitrary new standard has major ramifications for every existing activity within an 1875 Act right-of-way.  For example, railroads may no longer be legally able to authorize the use of their respective rights-of-way to third parties for critical infrastructure, such as water pipelines, power lines, telecommunication lines, and fiber-optic cables, even when those activities further a railroad purpose and were co-located in compliance with the long-standing prior standard.  We understand that there are currently over 3,500 individual instances of third-party uses of the 1875 Act rights-of-way over federal lands and each is threatened by this new BLM standard.”

The BLM has not yet withdrawn Cadiz’s 2015 evaluation.

The Cadiz Water Project seeks to capture groundwater in California’s Fenner Valley that would otherwise rise to the surface and evaporate. The water would be pumped on Cadiz’s properties and the captured water would be conveyed via a 43-mile buried pipeline,  in a right-of-way held by the Arizona and California Railroad (ARZC) that crosses BLM land to the Colorado River Aqueduct. No facilities would be built on federal land. The water would then later be distributed to Southern California communities in need of reliable water sources.

The Congressional letter cites the project’s Environmental Impact Report that said, “…in the absence of the Project, approximately three million acre-feet of groundwater presently held in storage between the proposed well field and the Dry Lakes would become saline and evaporate over the next 100 years.”

The $225 million Cadiz project – one of the 50 projects on President Trump’s high priority infrastructure list – is unique in that it requires no public funding, will create nearly $1 billion in economic stimulus through investments in local businesses and will create upwards of 6,000 new jobs, ten percent of which are reserved for veterans. Cadiz is headquartered in Los Angeles.

The project has been opposed by California Senator Dianne Feinstein (D) and several environmental groups claiming that the project would have a detrimental impact on California’s desert. She claims the Cadiz project would draw out up to 10 times more water from the desert aquifer than can be naturally recharged, and cause harm to the desert environment.

But Cadiz’s CEO Scott Slater has countered Sen. Feinstein’s allegation saying that, “Senator Feinstein regrettably relies on outdated, 17-year old data inconsistent with presently known facts as foundation to oppose a project which will safely and sustainably create new water for 400,000 people, has broad bipartisan community support, will generate 5,900 new jobs, and will drive nearly $1 billion in economic growth.  Two public agencies and twelve separate court opinions have expressly repudiated her arguments and sustained our project in accordance with CEQA (California Environmental Quality Act), the highest environmental legal standard anywhere in America.”

In 2016, the California Court of Appeal upheld the Cadiz Water Project’s environmental reviews and permits against claims brought by environmental opponents. The Courts found no flaws in the review process or the Project’s proposal or groundwater management plan.

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Trump administration revokes Obama-era directive blocking controversial water project

Category : News

FoxNews.com

4-5-17

The Trump administration issued a memo late last week revoking two federal directives implemented under President Obama that had blocked a controversial water project in California’s Mojave Desert.

An acting assistant director at the U.S. Bureau of Land Management (BLM) rescinded two legal guidances that reinforced the agency’s 2015 decision that Cadiz Inc. could not use an existing federal railroad right-of-way in its long-standing project to pump groundwater from the project’s planned well field in the Mojave Desert and sell it to urban areas throughout Southern California that rely on the Colorado River Aqueduct.

While the BLM’s one-page order didn’t specifically mention the Cadiz project, it eases the way for the company to argue for the reversal of the findings of the agency’s California field office, which said the company needed federal approval to construct its 43-mile water pipeline. The memo also noted that any future right-of-way decisions will be determined by the BLM’s office in Washington, D.C.

Cadiz CEO Scott Slater told the Los Angeles Times that he was “cautiously optimistic” that the BLM’s reversal will allow the pipeline to be greenlit. Under the Obama administration’s order, Cadiz would have had to go through a lengthy and pricey federal environmental review process if it wanted to construct its pipeline on government-owned land.

The resource company hopes to pump groundwater stored in its privately-owned Mojave holdings to supply 100,000 households. If successful, Cadiz stands to make between $1 billion and $2 billion in revenue over the project’s 50-year lifespan.

The pipeline has the support of many local lawmakers, including the San Bernardino County Board of Commissioners, which approved the project back in 2012. The board argued that the project would be a boon to the local economy by creating thousands of jobs and also bring water reliability to an area of the country that has suffered through a devastating drought over the past few years.

Cadiz also overcame a number of environmental lawsuits under state law. As part of its decision the San Bernardino County supervisors established an independent enforcement role over the project’s operations and authorized groundwater withdrawals that will avoid harm to desert resources.

Environmentalists and desert advocates, however, have decried the project, arguing that the project could deplete water needed to support the local wildlife and cause dust storms that would affect regional air quality.

Federal hydrologists have challenged Cadiz’s assertions about the rate of natural recharge of the desert aquifer. Public land advocates say that any pumping will dry up the natural springs on surrounding federal land.

“Many of the springs and seeps are going to dry up because of groundwater extraction,” Ileene Anderson, a biologist with the Center for Biological Diversity, told The Press Enterprise.

Sen. Diane Feinstein, who authored the California Desert Protection Act and was instrumental in creating the nearby Mojave Trails National Preserve, has been one of the biggest opponents of Cadiz. The California Democrat has for years attached riders to congressional appropriations bills preventing the BLM from spending money that would benefit the Cadiz project.

“The Trump administration wants to open the door for a private company to exploit a natural desert aquifer and destroy pristine public land purely for profit,” Feinstein said in a statement. “The administration is completely undermining federal oversight of railroad rights-of-way.”

Despite the pushback from Feinstein, the project enjoys a good deal of support in Congress. Rep. Rob Bishop of Utah – the chairman of the House Natural Resources Committee – was one of 18 members of Congress to urge Interior Secretary Ryan Zinke to revoke the BLM directives.

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