Raser To Pay Off Debt – Analyst Blog

Environmental energy technology company Raser Technologies Inc. (RZ) signed a deal to satisfy its debt obligation related to its Thermo No. 1 geothermal power plant project.

Thermo No. 1 project has a 20-year contract period with the city of Anaheim, California at a rate of $78 per megawatt-hour and came online in April 2009. This rate will increase by 2% each year over the life of the power purchase agreement.

The company reached an agreement to pay a significant portion of the debt to Prudential Capital Group, a unit of Prudential Financial Inc., which provided almost $30 million to finance the construction of the project. The lender will immediately receive $27 million from the project escrow account and an additional $6 million before June 29, 2011. After the initial payment to the lender, Raser will have $3 million left in its project escrow account to facilitate plant operation and other related expenses.

Raser also intends to divest some or all of its interest in Thermo or another asset to fulfill rest of its obligations to Prudential over the next 12 months. Alternatively, the company may use cash from other sources for this purpose.

The project was designed for a 10-megawatt capacity, while it is currently producing approximately 6 megawatts of electricity that is available for sale. Several unaffiliated geothermal equipment manufacturers intended that the company can realize its production potential through upgrading the plant’s equipment. However, the company is considering divestiture of an equity stake in its Thermo project to finance the installation of larger and more efficient turbines.

Even if the plant is sold off, the company would retain its right for its other project development near Thermo, which has an additional 100 to 150 megawatts of generating potential.

We believe, the company is making an appreciable effort by paying off debt burden, but escalating losses and dependence on external funds will continue to weigh on the company in the near term. Our Neutral recommendation remains unchanged for the stock.