Nick Andrews Takes His Hat Off: The Making of the Historic Southwest Airlines/USA BioEnergy SAF Pact

by Jim Lane (Biofuels Digest) ... Historic not just for the large volume, but for the 20-year length of the agreement, something called by the financial industry the “tenor of the loan”.

As tenors go, this one is right up there with Pavarotti, Domingo and Carreras for power and market impact. That 20-year deal, no one ever had one before, it’s going to change the trajectory of SAF deployment, for sure.

Nick (USA BioEnergy CEO Nick Andrews) took his hat off to his team at USA BioEnergy. He took the hat off to the team at Southwest Airlines led by Michael AuBuchonand Bob Jordan — he paid them the rare compliment of being excellent listeners, curious to understand what would unlock SAF deployment and to play the necessary role if needed that the offtaker will have to play. Nick took his hat off to Citigroup Global Markets Inc. as lead underwriter and exclusive investment banker — David Livingston, Alison Larr, Steve Carson and a dozen in that team in all — especially crediting them for the critical modeling skills that clarified to all why the 20-year offtake that no one had yet agreed to was so financially superior to the 15-year agreement that had previously been the best that anyone could achieve. Nick took his hat off to co-underwriters Stifel Nicolaus & Co., to credit monetization consultants, the BDO Zone team at Ecostrat who developed the AA rating for Bon Weir Texas feedstock. It takes a village to build a project, there’s so many hats to doff by the time a project breaks through, you want to own a hatter.

As many would expect, joining Nick in the call was Mark Riedy who with Patrick McShane and the Kilpatrick Energy Practice Group represent USA BioEnergy in negotiating and drafting project financing agreements, advise tax and corporate structuring, federal governmental affairs, including federal energy, environmental tax policy initiatives. Mark is to many a project as Tonto is to the Lone Ranger, never in the front, but essential to the scene.

Understanding exactly what you need and conveying your needs with precision, honesty and with a real interest in finding the win-win....

You can see that same quality in the USA BioEnergy deal. Everyone wants the project, everyone wants the SAF. Conveying clearly, transparently — open kimono, as they say — what the project needs and why. That’s what got this 20-year offtake to happen. Once the necessity is clear, all the nice-to-have players fall away, and most of the need-to-haves. What’s left is the I’ll-find-a-way-to-work-with-you’s. Southwest came to the party, as almost everyone did, they listened, stayed, understood and eventually agreed. Not overnight, mind you, this has been more than a year in the making....

When you model a 20 year loan against a 15 year offtake agreement, on first of kind technology in a market that is expected to be huge but is currently tiny, that screams risk. Extraordinary risks demand extraordinary returns, and that drives up the cost of borrowing, equity, and fuel. No one wins — because of those uncovered years where a lender might have a plant with no customers to buy fuel. It’s a building with the prospect of no tents in the future — but the building industry is not new, housing demand is well-established since the dawn of the Neolithic. Not so, the SAF market.

So, here we have it. Perhaps 12 years from the very first SAF offtake contact, the first where a 20 year loan is covered with a 20 year off-take.

That’s what’s put USA Bioenergy on the fast-track towards commercial scale for its F/T technology that produces an ultra low-carbon SAF, renewable diesel, and renewable naphtha from sustainably sourced forest thinnings. Once blended with conventional jet fuel, the 680 million gallons SAF in this agreement could produce the equivalent of 2.59 billion gallons of net-zero fuel and avoid 30 million metric tons of CO2 over the agreement term.

Southwest plans to begin purchasing SAF from USA BioEnergy’s facility near Bon Wier, Texas, as early as 2028. Additionally, as part of the offtake agreement, USA BioEnergy and Southwest have established a long-term strategic relationship offering Southwest the opportunity to purchase up to another projected 180 million gallons of SAF per year from future planned production facilities. READ MORE