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