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Note 6 - Aemetis Biogas - Series A Preferred Financing and Variable Interest Entity | 12 Months Ended
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Dec. 31, 2023
Notes to Financial Statements |
Variable Interest Entity Disclosure [Text Block] | 6. Aemetis Biogas - Series A Preferred Financing and Variable Interest Entity On December 20, 2018, ABGL entered into a Series A Preferred Unit Purchase Agreement for the sale of Series A Preferred Units to Protair-X Americas, Inc. (Purchaser), with Third Eye Capital acting as an agent for the sale of 6,000,000 preferred units of ABGL. ABGL is authorized to issue 11,000,000 common units, and up to 6,000,000 convertible, redeemable, secured, preferred membership units (the “Series A Preferred Units”). ABGL issued 6,000,000 common units to the Company at $5.00 per common unit for a total of $30,000,000 in funding. Additionally, 5,000,000 common units of ABGL are held in reserve as potential conversion units issuable to the Purchaser upon certain triggering events discussed below. Prior to August 8, 2022, the Preferred Unit Purchase Agreement included (i) preference payments of $0.50 per unit on the outstanding Series A Preferred Units commencing on the second anniversary, with any outstanding preference payments subject to interest at 10 percent per annum (ii) conversion rights for up to 1,200,000 common units or up to maximum number of 5,000,000 common units (also at a one Series A Preferred Unit to one common unit basis) if certain triggering events occur, (iii) one board seat of the three available to be elected by Series A Preferred Unit holders, (iv) mandatory redemption value at $15 per unit payable at an amount equal to 75% of free cash flow generated by ABGL, up to $90 million in the aggregate (if all units are issued), (v) full redemption of the units on the sixth anniversary, (vi) minimum cash flow requirements from each digester, and (vii) $0.9 million paid as fees to the Agent from the proceeds. Until paid, the obligations of ABGL under the Preferred Unit Agreement are secured by the assets of ABGL in an amount not to exceed the sum of (i) $30,000,000, plus (ii) all interest, fees, charges, expenses, reimbursement obligations and indemnification obligations of ABGL. Prior to August 8, 2022, triggering events would be deemed to occur upon ABGL’s failure to redeem units, comply with covenants, any other defaults or cross defaults, or to perform representations or warranties. Upon a triggering event: (i) the obligation of the Purchaser to purchase additional Series A Preferred Units is terminated, (ii) cash flow payments for redemption payments increases from 75% to 100% of free cash flows, and (iii) total number of common units into which preferred units may be converted increases from 1,200,000 common units to 5,000,000 common units on a one for one basis. As of December 31, 2023, ABGL has not generated minimum quarterly operating cash flows by operating the dairies. As a result of the violation of this covenant, free cash flows, when they occur, may be applied for redemption payments at the increased rate of 100% instead of the initial rate of 75% of free cash flows. From inception of the agreement to August 8, 2022, ABGL issued 3,200,000 Series A Preferred Units in the first tranche for a value of $16.0 million and also issued 2,800,000 of Series A Preferred Units in a second tranche for a value of $14.0 million, reduced by a redemption of 20,000 Series A Preferred Units for $0.3 million. On August 8th, 2022, ABGL entered into a Waiver and Amendment to Series A Preferred Unit Purchase Agreement (“PUPA Amendment") providing for: (i) a waiver of certain covenants prohibiting the internal reorganization of ABGL subsidiaries and the incurrence of indebtedness by ABGL and its subsidiaries pursuant to a USDA loan; (ii) a waiver of certain operational defaults under the PUPA; and (iii) an amendment which (a) requires ABGL to redeem all of the outstanding Series A Preferred Units by December 31, 2022, (the “Final Redemption Date”) for $116 million; and (b) provides ABGL the right to redeem all of the outstanding Series A Preferred Units by September 30, 2022, for $106 million. The PUPA Amendment further provides the failure to redeem the Series A Preferred Units by the Final Redemption Date would constitute a triggering event requiring ABGL to enter into a credit agreement with Protair and Third Eye Capital effective as of January 1, 2023. We evaluated the terms of the PUPA Amendment and applied extinguishment accounting treatment in accordance with ASC 470-50 Debt – Modification and Extinguishment and recorded a loss on extinguishment of $49.4 million. On January 1, 2023, ABGL entered into the Second Waiver and Amendment to Series A Preferred Unit Purchase Agreement (“PUPA Second Amendment") providing for: (i) a waiver for not redeeming all Series A Preferred Units by December 31, 2022, and (ii) the right by ABGL to redeem all of the outstanding Series A Preferred Units by May 31, 2023, for an aggregate redemption price of $125 million. The PUPA Second Amendment further provides that failure to redeem the Series A Preferred Units by the redemption date, ABGL is required to enter into a credit agreement with Protair and Third Eye Capital effective as of June 1, 2023 and maturing on May 31, 2024, in substantially the form attached to the PUPA Second Amendment. We determined that Third Eye Capital provided a concession to redeem the preferred shares at lower effective borrowing rate than the credit agreement interest rate or prior amendment rate. In accordance with the provisions of ASC 470-60 Troubled Debt Restructuring, we applied troubled debt restructuring accounting, resulting in no gain or loss from the application of this accounting. In addition, given that the Company could turn the agreement into a credit agreement, the Company began accreting the redemption price from an initial carrying value at December 31, 2022, of $116.0 million to $159.0 million over the seventeen months ending May 31, 2024. On May 31, 2023, ABGL entered into the Third Waiver and Amendment to Series A Preferred Unit Purchase Agreement (“PUPA Third Amendment") providing: (i) a waiver to ABGL for not redeeming all Series A Preferred Units by May 31, 2023 and (ii) the right by ABGL to redeem all of the outstanding Series A Preferred Units by August 31, 2023, for an aggregate redemption price of $135 million. The PUPA Third Amendment further provides that failure to redeem the Series A Preferred Units by the redemption date, ABGL is required to enter into a credit agreement with Protair and Third Eye Capital effective, as of September 1, 2023 and maturing on August 31, 2024, in substantially the form attached to the PUPA Third Amendment. We determined that Third Eye Capital provided a concession to redeem the preferred shares at lower effective borrowing rate than the credit agreement interest rate or prior amendment rate. In accordance with the provisions of ASC 470-60 Troubled Debt Restructuring, we applied troubled debt restructuring accounting, resulting in no gain or loss from the application of this accounting. In addition, given that the Company could turn the agreement into a credit agreement, the Company is accreting these tranches from a carrying value at May 31, 2023 of $127.2 million to $171.7 million over the fifteen months ending August 31, 2024. . On October 6, 2023, ABGL partially repaid $30 million of Series A Preferred Units using the partial proceeds from tax credit sale of $55.2 million. On November 8, 2023, ABGL entered into the Fourth Waiver and Amendment to Series A Preferred Unit Purchase Agreement (“PUPA Fourth Amendment") providing: (i) a waiver to ABGL for not redeeming all Series A Preferred Units by August 31, 2023 and (ii) the right by ABGL to redeem all of the outstanding Series A Preferred Units by December 31, 2023, for an aggregate redemption price of $108 million which included $5.5 million closing fee. The PUPA fourth Amendment further provides that failure to redeem the Series A Preferred Units by the redemption date, ABGL is required to enter into a credit agreement with Protair and Third Eye Capital effective, as of January 1, 2024 and maturing on December 31, 2024, in substantially the form attached to the PUPA fourth Amendment. We determined that Third Eye Capital provided a concession to redeem the preferred shares at lower effective borrowing rate than the credit agreement interest rate or prior amendment rate. In accordance with the provisions of ASC 470-60 Troubled Debt Restructuring, we applied troubled debt restructuring accounting, resulting in no gain or loss from the application of this accounting. In addition, given that the Company could turn the agreement into a credit agreement, the Company began accreting the redemption price from a carrying value at November 8, 2023 of $110.6 million to $130.0 million over the period ending December 31, 2024. On February 8, 2024, ABGL entered into the Fifth Waiver and Amendment to Series A Preferred Unit Purchase Agreement (“PUPA Fourth Amendment") providing: (i) a waiver to ABGL for not redeeming all Series A Preferred Units by December 31, 2023 and (ii) the right by ABGL to redeem all of the outstanding Series A Preferred Units by April 30, 2024, for an aggregate redemption price of $111.0 million which includes a closing fee of $5.5 million. The PUPA Fifth Amendment further provides that if ABGL does not redeem the Series A Preferred Units by the redemption date, ABGL will enter into a credit agreement with Protair and Third Eye Capital effective as of May 1, 2024 and maturing April 30, 2025, in substantially the form attached to the PUPA fifth Amendment. We will evaluate the PUPA fifth amendment according to ASC 470. Based on the terms of the PUPA Fifth Amendment, the deferred PUPA redemption balance is classified as long term liability as of December 31, 2023. The Company recorded carrying value of Series A Preferred Unit liabilities as long-term liabilities of $113.2 million and $116.0 million as of December 31, 2023 and 2022, respectively. Variable interest entity assessment After consideration of ABGL’s operations and the above agreement, we concluded that ABGL did not have enough equity to finance its activities without additional subordinated financial support. ABGL is capitalized with Series A Preferred Units that are recorded as liabilities under U.S. GAAP. Hence, we concluded that ABGL is a VIE. Through the Company's ownership interest in all of the outstanding common stock, its current ability to control the board of directors, the management fee paid to Aemetis and control of subordinated financing decisions, Aemetis has been determined to be the primary beneficiary and accordingly, the assets, liabilities, and operations of ABGL are consolidated into those of the Company. Total assets, before intercompany eliminations, of ABGL as of December 31, 2023 were $90.3 million which serve as collateral for the Series A Preferred Units.

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- Definition The entire disclosure for a variable interest entity (VIE), including but not limited to, judgments and assumptions in determining whether to consolidate and in identifying the primary beneficiary, gain (loss) recognized on the initial consolidation of the VIE, terms of arrangements, amounts and classification of the VIE's assets and liabilities, and the entity's maximum exposure to loss. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 810 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//810/tableOfContent + Details
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