California backed a Valley rice plant with tax-free ‘green bonds.’ What its bankruptcy means

It looked like a promising clean-tech investment for California — a revolutionary Sacramento Valley plant that would turn rice straw into fiberboard.

State officials were so enthused, they helped finance the fledgling plant with more than $300 million in tax-exempt bonds, figuring the project would create jobs in the heart of California rice country while helping to reduce greenhouse gases emitted by rice straw. The bonds didn’t put state taxpayers on the hook for the company’s financial troubles.

Now the plant has filed for bankruptcy.

CalPlant I LLC, which operates the plant in the Glenn County town of Willows, filed for Chapter 11 reorganization Tuesday. The privately-owned company said it would use the bankruptcy to restructure its debt and seek a buyer.

The Chapter 11 filing, in U.S. Bankruptcy Court in Delaware, doesn’t mean the state has lost its money. The California Pollution Control Financing Authority, an arm of state Treasurer Fiona Ma’s office, provided the company with the state’s tax-exempt borrowing capacity.

Although the authority issued the bonds to build to the plant, “there are no taxpayer funds at risk,” said Noah Starr, a spokesman for Ma.

According to the Wall Street Journal, municipal bond funds are among the largest lenders to the company, which employs more than 125 workers.

The Pollution Control Financing Authority approved nearly $344 million in tax-exempt “green bonds” for the company between 2017 and 2020, a testament to CalPlant’s stature as a clean-tech business. The company refers to its product as “the world’s first no-added-formaldehyde, rice straw-based medium density fiberboard.”

According to authority documents, the company said turning rice straw into fiberboard would eliminate 1.2 million tons of greenhouse gases that are normally emitted when the straw decomposes after the harvest. That’s “the equivalent of removing approximately 270,000 cars from California’s roadways each year,” the company told the state agency.

Jeffrey Wagner, the company’s executive chairman, blamed startup problems and the COVID-19 pandemic for CalPlant’s bankruptcy.

“The road to fully commissioning our plant has not been smooth,” he said in a news release. “We started commissioning our facility in early March 2020, then the pandemic hit. Suddenly, the usual challenges and delays associated with a startup were compounded.”

The company lost $21 million last year, according to a bond document.

Three months ago, at its July board meeting, the authority approved another $18 million in financing for CalPlant, bringing the total state-backed financing to more than $360 million. The company’s president, Jerry Uhland, told the board that the financing was “vital for the success of the plant,” according to meeting minutes.

Yet the company was already in significant financial stress. Public bond documents show that the company began defaulting on its debts in early June.