The Well-Earned Prize: NEXT Renewables’ Proposed SPAC Merger, in Detail

by Jim Lane (Biofuels Digest) ... NXT has received the majority of its key permits and expects to begin construction upon completion of an Environmental Impact Statement currently underway with the US Army Corp of Engineers. Commencement of RD/SAF production is projected for 2026; the Company expects to be EBITDA positive in its first full year of production.

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The ITAQ backstory

ITAQ is SPAC company; the IPO closed in January with $175 million in proceeds. ITAQ is sponsored by Texas Ventures, a leading technology and venture capital firm with expertise in capital markets and structured finance. The Texas Ventures’ approach is to identify emerging trends and opportunities prior to recognition by the broader marketplace, and to take a proactive approach in working with entrepreneurs and managers who have the determination to build world-class companies. Texas Ventures has made more than 30 portfolio investments, several in life sciences and energy tech, this is the first we know of in renewable fuels.

The Company’s first project is a /750 million gallon per year RD/SAF refinery in at Port Westward, Oregon, along the Columbia River. The project is advancing through permitting and expects to begin construction upon completion of an Environmental Impact Statement currently underway with the US Army Corp of Engineers.

The United connection

United Airlines Ventures entered into a strategic investment agreement with NXT pursuant to which it invested in NXT and could continue to invest as much as $37.5 million, as long as NXT meets certain milestones

The SPAC caveats

In the case of ITAQ, the company currently has roughly 21 million shares outstanding, or a market cap of $217 million and a share price of $10.10. That’s the IPO proceeds plus the original 4.2 million shares pre-IPO.

The agreement specifies that the merger could close with as little as $5 million remaining in ITAQ’s accounts after redemptions to shareholders opposed to the merger — it’s a common feature of SPAC mergers, offering investors an exit through share redemption — the terms are pretty lean. That’s as high as a 95 percent redemption rate, yikes. It puts emphasis on more of the private investment in public entity (PIPE) financing that we see in the United Airlines Ventures investment. Overall, the merger has to have a minimum of $50 million in hand from the assets of the SPAC and the proceeds from a PIPE investment round.

Given the heat around renewable diesel, there’s little doubt the venture could raise the amount — the cost of the money is always dependent on market conditions and investors will want to keep a close eye on other SPAC transactions, as well as the efforts to expand the demand side of the California Low Carbon Fuel Standard as the wave of clean fuels deployment has caused a dip in the value of carbon credits, as was always the point of an LCFS which is designed as a catalyst to innovation not a crutch.

Why do SPAC investors bail out — or rather, why do they come in at all given that the bail-out rate is so high? As our friends at Harvard explain:

In order to attract IPO investors, SPACs promise an attractive return for allowing the SPAC to hold their cash for two years. SPAC shareholders that redeem their shares receive the full price of the units sold in the IPO with interest—plus the right to keep the warrants included in the units for free. For SPACs in our study, that has amounted to an average annualized return of 11.6% for redeeming investors, with essentially no downside risk.

What’s especially interesting about this deal for SPAC investors who might choose to stay the course? In a nutshell, it’s the presence of blue-chip partners for offtake and feedstock

What’s nerve-wracking?

The final permits are not yet issued for construction, As we observed in this review of NEXT, the permitting process in Oregon can be like rowing in a lake of peanut butter, lot of effort, slow progress.

The Well-Earned Prize

When achieved, a berth along the Columbia River is a well-earned prize indeed. Think terminal access, think barging opportunities, think experience with large scale industrial operations, think infrastructure, and think proximity to the Oregon, Washington state, BC and California low carbon fuel markets. READ MORE