Jun 13, 2009
Hu Honua Bioenergy LLC completed a rate term sheet with Helco for approximately 22MW firm capacity. The purpose of this letter is to present facts about their parent company and why this information is important for any financial review of Hu Honua. I also present reasons to doubt Hu Honua’s past and current financial representations.
Executive Summary.
During 2008 and 2009, Hu Honua Bioenergy LLC and MMA Renewable Venture LLC executives and advisors met on numerous occasions with Pepeekeo residents, Helco representatives, County Planning representatives, local ILWU, Senator Akaka, Representative Hirono, Representative Neil Abercrombie, other government officials, and the media.
Representations were made by these executives that were not true at the time, and had never been true. These claims were made to persuade the listener of their ability to complete the renovation, refurbishing, operation, and licensing of a biomass power plant located in Pepeekeo, Hawaii.
There should be significant doubt about Hu Honua’s ability to perform on any agreement, since it no longer belongs to MMA Renewable Ventures, but remains an asset of the parent company, MuniMae, whose reorganization plan is to own and manage portfolios of tax-exempt and market rate bonds and loans. The ownership and operation of a biomass power plant is inconsistent with their plan. Further, the employees with the abilities to plan, manage, and operate renewable power plants are now employed by Fotowatio Renewable Ventures.
Discussion and Facts
Organization prior to May 2009:
Municipal Mortgage & Equity, LLC , or MuniMae, (parent), traded on the New York Stock Exchange: MMAB
MMA Renewable Ventures (wholly owned division)
Hu Honua Bioenergy, LLC (division is majority shareholder)
Ethanol Research Hawaii, LLC (partner of Hu Honua)
Current organization after sale of assets:
Municipal Mortgage & Equity, LLC (parent), traded over the counter: MMAB.PK
Hu Honua Bioenergy, LLC (including biomass plant)
Ethanol Research Hawaii, LLC (inactive)
Enclosed are excerpts of Municipal Mortgage & Equity’s (aka MuniMae) current 10-K submissions to the Securities and Exchange Commission (SEC), a 210 page document, which can be downloaded and/or printed in full at the SEC website, http://www.sec.gov.
Status of the company 2008 and 2009 were bad years for raising money, even for renewable energy projects. The company slowed down their investment in renewable energy projects as early as Q1 2008.
April 2009, 10-K report, page 11:
“During 2008 and the first part of 2009, we have been unable to form new funds, and in good part our business activities have been limited to providing multifamily loans in our business of originating mortgage loans for sale to, and servicing loans for, government sponsored enterprises and agencies, and new solar projects in our renewable ventures business (although even this aspect of our business was substantially reduced during 2008).”
“We had remained actively engaged through the first quarter of 2008 in our renewable energy finance and development activities. However, beginning in the second quarter of 2008, we reduced the pace at which we were investing in renewable energy projects, partly because of a slowdown in our ability to obtain funds for investments, and partly because of investor uncertainty caused by Congress’ delay in finalizing legislation extending tax credits that were scheduled to reduce significantly at the end of 2008 (but now have been extended). “ Page 16
April 2009, 10-K report, page F-89
“The Company is currently managing its businesses in a manner to conserve capital and reduce costs and has been working with all of its lenders to restructure as many of its creditor agreements as possible in order to satisfy its ongoing liquidity needs and obtain forbearance agreements… In the event management’s plans are not successful, the Company could consider seeking relief through a bankruptcy filing. …If we complete the sales of our Agency Lending business and our Tax Credit Equity business, our only significant remaining activities will be owning and managing portfolios of tax-exempt and market rate bonds and loans. This will enable us to reduce significantly the number of people we employ (in addition to the personnel of the businesses we sell who become employees of the buyers or whose services are no longer required because we do not operate those businesses).“ page 11
Dog & Pony Show. Executives of MMA Renewable Ventures visit Hawaii to discuss the strength of their company, and their ability to make a significant investment in the community.
July 9, 2008 Hu Honua and MMA Renewable Ventures meet with Pepeekeo residents:
I asked them about the 46% drop in MuniMae stock price and the recent class action lawsuits accusing management of financial fraud and they said they had no comment about internal legal issues of their parent company. Noticeably, they did not say they were unaware of the issues. Since MuniMae was the largest stockholder of both entities, it seems that these executives would be interested in the drop in the value of their personal assets, i.e., MuniMae stock. Further, it is inconceivable that the parent company would not be issuing statements to its employees explaining their position on the reason for the stock decline as well as the 10 class action lawsuits. Being silent with employees could only jeopardize morale, productivity, and possibly employee turnover.
August 8, 2008 Hawaii Tribune-Herald “Power Facility: No Coal”, interviews Tim Lasocki, (then Vice President for Business Development MMA Renewable Ventures, and now Executive Vice President Hu Honua). “Hu Honua's operation is expected to cost between $25 million and $40 million. The money would come from long-term loans typically used to finance power plants, Lasocki said.” Surely Mr. Lasocki was aware that MuniMae was cutting back on their renewable investments as was recounted above in the paragraph entitled “Status of the company”.
Oct 2008 Hu Honua’s PowerPoint presentation to Pepeekeo Community:
• “Parent company MuniMae has $19 billion in assets under management”
• “$3.5 billion in new financing annually”
I find this entirely false, because the company did not have any unencumbered assets at that time, and the company was finding it difficult to raise money and slowed down its investment in renewable projects in Q1 as cited above under “Status of the company”. Further, there were no financial reports made by the company for 2008 and numerous lawsuits filed in 2008 cast doubt on any financial information.
“All of our businesses require significant access to borrowed funds and as such we have almost no assets that are unencumbered at December 31, 2008... Because we were not able to deliver financial statements in a timely manner, most of our debt that is not part of a bond securitization transaction was in default, and most of our lenders could have required us to repay the indebtedness.” Page 25, April 2009 10-K report
Hu Honua executives continue to represent that they the parent company will provide the funds for their project, however, the parent company has not filed any required financial reports to the SEC for 2007, 2008, or Q1 2009. They restated their prior SEC submissions for 2004, 2005, and 2006. So how can a reasonable person believe Hu Honua’s representations of their financial capacity to perform on this project? Further, How could these executives believe that they could pull off this project when their parent company was slowing down its investment in renewable projects and was finding it difficult to raise money?
“This Report does not contain quarterly information for years ended December 31, 2006 and 2005 nor do we plan to provide this information through subsequent Securities and Exchange Commission (“SEC”) filings. Preparing and providing this information would be costly, would be only marginally beneficial to our investors and would serve only to delay the filing of this Report as well as future filings which will provide our 2007 and 2008 financial position and results of operations.” Page 5.
Investor Beware. The renewable energy projects that MMA Renewable Ventures LLC funded, built, and operated before being sold to Fotowatio followed a similar approach. Money was raised from institutional investors and set aside in designated funds, such as Solar I, Solar II, Solar III, and Solar IV. Each fund was formed as a general partnership with limited partnership shares. Each fund was used to build and operate a specific project facility. Over $200Million was raised in 2007 and 2008 for these committed solar projects. MMA Renewable was sold for $19.7 million earlier this year, a fraction of what those projects cost. What happens to the investors holding limited partnership interests? Well, MuniMae committed to guarantee its obligations, but, that seems a hollow promise given their current condition. So, what sort of institutional investor will invest in more renewable energy projects, given the sorry experience of MMA Renewables? The risk seems too great in today’s market.
Conclusion. I do not believe any representations made by Hu Honua Bioenergy LLC or former executives of MMA Renewable Ventures. I do not believe that they can raise $40 million or even $80 million (as told to one government official). I hope that any financial information presented to Helco, PUC, EPA, or DOH, be given a full audit by Hawaii State auditors. I hope that a rigorous risk analysis be conducted on any agreement with this company. It seems likely that MuniMae will sell Hu Honua, so the State auditors should look any exposure, should that occur. Any new owner should provide audited financials as part of the due diligence process.
Executive Summary.
During 2008 and 2009, Hu Honua Bioenergy LLC and MMA Renewable Venture LLC executives and advisors met on numerous occasions with Pepeekeo residents, Helco representatives, County Planning representatives, local ILWU, Senator Akaka, Representative Hirono, Representative Neil Abercrombie, other government officials, and the media.
Representations were made by these executives that were not true at the time, and had never been true. These claims were made to persuade the listener of their ability to complete the renovation, refurbishing, operation, and licensing of a biomass power plant located in Pepeekeo, Hawaii.
There should be significant doubt about Hu Honua’s ability to perform on any agreement, since it no longer belongs to MMA Renewable Ventures, but remains an asset of the parent company, MuniMae, whose reorganization plan is to own and manage portfolios of tax-exempt and market rate bonds and loans. The ownership and operation of a biomass power plant is inconsistent with their plan. Further, the employees with the abilities to plan, manage, and operate renewable power plants are now employed by Fotowatio Renewable Ventures.
Discussion and Facts
Organization prior to May 2009:
Municipal Mortgage & Equity, LLC , or MuniMae, (parent), traded on the New York Stock Exchange: MMAB
MMA Renewable Ventures (wholly owned division)
Hu Honua Bioenergy, LLC (division is majority shareholder)
Ethanol Research Hawaii, LLC (partner of Hu Honua)
Current organization after sale of assets:
Municipal Mortgage & Equity, LLC (parent), traded over the counter: MMAB.PK
Hu Honua Bioenergy, LLC (including biomass plant)
Ethanol Research Hawaii, LLC (inactive)
Enclosed are excerpts of Municipal Mortgage & Equity’s (aka MuniMae) current 10-K submissions to the Securities and Exchange Commission (SEC), a 210 page document, which can be downloaded and/or printed in full at the SEC website, http://www.sec.gov.
Status of the company 2008 and 2009 were bad years for raising money, even for renewable energy projects. The company slowed down their investment in renewable energy projects as early as Q1 2008.
April 2009, 10-K report, page 11:
“During 2008 and the first part of 2009, we have been unable to form new funds, and in good part our business activities have been limited to providing multifamily loans in our business of originating mortgage loans for sale to, and servicing loans for, government sponsored enterprises and agencies, and new solar projects in our renewable ventures business (although even this aspect of our business was substantially reduced during 2008).”
“We had remained actively engaged through the first quarter of 2008 in our renewable energy finance and development activities. However, beginning in the second quarter of 2008, we reduced the pace at which we were investing in renewable energy projects, partly because of a slowdown in our ability to obtain funds for investments, and partly because of investor uncertainty caused by Congress’ delay in finalizing legislation extending tax credits that were scheduled to reduce significantly at the end of 2008 (but now have been extended). “ Page 16
April 2009, 10-K report, page F-89
“The Company is currently managing its businesses in a manner to conserve capital and reduce costs and has been working with all of its lenders to restructure as many of its creditor agreements as possible in order to satisfy its ongoing liquidity needs and obtain forbearance agreements… In the event management’s plans are not successful, the Company could consider seeking relief through a bankruptcy filing. …If we complete the sales of our Agency Lending business and our Tax Credit Equity business, our only significant remaining activities will be owning and managing portfolios of tax-exempt and market rate bonds and loans. This will enable us to reduce significantly the number of people we employ (in addition to the personnel of the businesses we sell who become employees of the buyers or whose services are no longer required because we do not operate those businesses).“ page 11
Dog & Pony Show. Executives of MMA Renewable Ventures visit Hawaii to discuss the strength of their company, and their ability to make a significant investment in the community.
July 9, 2008 Hu Honua and MMA Renewable Ventures meet with Pepeekeo residents:
I asked them about the 46% drop in MuniMae stock price and the recent class action lawsuits accusing management of financial fraud and they said they had no comment about internal legal issues of their parent company. Noticeably, they did not say they were unaware of the issues. Since MuniMae was the largest stockholder of both entities, it seems that these executives would be interested in the drop in the value of their personal assets, i.e., MuniMae stock. Further, it is inconceivable that the parent company would not be issuing statements to its employees explaining their position on the reason for the stock decline as well as the 10 class action lawsuits. Being silent with employees could only jeopardize morale, productivity, and possibly employee turnover.
August 8, 2008 Hawaii Tribune-Herald “Power Facility: No Coal”, interviews Tim Lasocki, (then Vice President for Business Development MMA Renewable Ventures, and now Executive Vice President Hu Honua). “Hu Honua's operation is expected to cost between $25 million and $40 million. The money would come from long-term loans typically used to finance power plants, Lasocki said.” Surely Mr. Lasocki was aware that MuniMae was cutting back on their renewable investments as was recounted above in the paragraph entitled “Status of the company”.
Oct 2008 Hu Honua’s PowerPoint presentation to Pepeekeo Community:
• “Parent company MuniMae has $19 billion in assets under management”
• “$3.5 billion in new financing annually”
I find this entirely false, because the company did not have any unencumbered assets at that time, and the company was finding it difficult to raise money and slowed down its investment in renewable projects in Q1 as cited above under “Status of the company”. Further, there were no financial reports made by the company for 2008 and numerous lawsuits filed in 2008 cast doubt on any financial information.
“All of our businesses require significant access to borrowed funds and as such we have almost no assets that are unencumbered at December 31, 2008... Because we were not able to deliver financial statements in a timely manner, most of our debt that is not part of a bond securitization transaction was in default, and most of our lenders could have required us to repay the indebtedness.” Page 25, April 2009 10-K report
Hu Honua executives continue to represent that they the parent company will provide the funds for their project, however, the parent company has not filed any required financial reports to the SEC for 2007, 2008, or Q1 2009. They restated their prior SEC submissions for 2004, 2005, and 2006. So how can a reasonable person believe Hu Honua’s representations of their financial capacity to perform on this project? Further, How could these executives believe that they could pull off this project when their parent company was slowing down its investment in renewable projects and was finding it difficult to raise money?
“This Report does not contain quarterly information for years ended December 31, 2006 and 2005 nor do we plan to provide this information through subsequent Securities and Exchange Commission (“SEC”) filings. Preparing and providing this information would be costly, would be only marginally beneficial to our investors and would serve only to delay the filing of this Report as well as future filings which will provide our 2007 and 2008 financial position and results of operations.” Page 5.
Investor Beware. The renewable energy projects that MMA Renewable Ventures LLC funded, built, and operated before being sold to Fotowatio followed a similar approach. Money was raised from institutional investors and set aside in designated funds, such as Solar I, Solar II, Solar III, and Solar IV. Each fund was formed as a general partnership with limited partnership shares. Each fund was used to build and operate a specific project facility. Over $200Million was raised in 2007 and 2008 for these committed solar projects. MMA Renewable was sold for $19.7 million earlier this year, a fraction of what those projects cost. What happens to the investors holding limited partnership interests? Well, MuniMae committed to guarantee its obligations, but, that seems a hollow promise given their current condition. So, what sort of institutional investor will invest in more renewable energy projects, given the sorry experience of MMA Renewables? The risk seems too great in today’s market.
Conclusion. I do not believe any representations made by Hu Honua Bioenergy LLC or former executives of MMA Renewable Ventures. I do not believe that they can raise $40 million or even $80 million (as told to one government official). I hope that any financial information presented to Helco, PUC, EPA, or DOH, be given a full audit by Hawaii State auditors. I hope that a rigorous risk analysis be conducted on any agreement with this company. It seems likely that MuniMae will sell Hu Honua, so the State auditors should look any exposure, should that occur. Any new owner should provide audited financials as part of the due diligence process.
