RNG company failed to make June payment on Gillett municipal bonds

GILLET – A financial services company said a renewable natural gas project didn’t make its pledged June 1 principal payment on a tax-free municipal bond the Town of Gillett approved several years ago, but was able to make the scheduled interest payment to investors.

Town of Gillett Town Board Chair Andy Schaal said June 6 the default won’t affect the town. “We’re just the conduit to the municipal bond going on the market. It doesn’t affect us at all,” he told a reporter.

About $41.6 million in outstanding debt is due to mature Dec. 1, 2032, said UMB Bank, the trustee for the bond financing. The bonds have been paying interest at a rate of 5.5% to investors, UMB said.

Schaal said Aerogy LLC, a renewable natural gas company, is working with Zahn’s Farm in the Town of Gillett on the renewable natural gas project. “They’re paying our attorney fees. They have their own attorney,” he said. Schaal referred a reporter to attorney Jim Lewis, but he had not responded by the deadline.

UMB Bank sent a notice to bondholders on June 2 about the loan default events involving Town of Gillett Tax-Exempt Solid Waste Disposal Revenue Bonds approved for WI RNG Hub North LLC, according to information first reported by Bloomberg, a business news company. A phone call and email to UMB for more information wasn’t responded to by deadline.

Michele DeWitt, an accountant who has spoken before about risks of mega farms that help to convert cow manure into renewable natural gas, said she sees several reasons to be concerned about megafarms. “Allowing dairy farms to balloon in size could put the groundwater at risk of contamination,” she said. She also has concerns about financial risks and tax-advantaged financing awarded to projects.

Zahn’s Farms LLC on County Road H in Gillett had about 11,500 cows in 2020, the most recent year for which data was available from the Wisconsin Department of Natural Resources. Calls to the sixth-generation family farm did not go through.

Some residents have opposed megafarms, or Concentrated Animal Feeding Operations (CAFOs), out of concern about possible environmental risks to groundwater. Others cite the wear and tear on local roads as trucks haul manure to digesters for processing into biogas. Others oppose them out of concerns about humane conditions for cows.

In Marinette County, DeWitt opposed the expansion of Pagels’ Coleman Ponderosa at N2727 23rd Road in Coleman. The Wisconsin Department of Natural Resources said Pagels’ Coleman farm is the largest dairy farm in Marinette County with about 6,500 cows.

“One of the concerns I expressed about Pagel’s tax-advantaged bond funding was the risk of default. I was told there is no history of a default in agricultural bond funding, and that there was no risk to the town,” DeWitt said reading the Bloomberg news story about the Town of Gillet municipal bonds.

DeWitt’s concern about financial risk stemmed from her education.

“We may see what risks there are for the Town of Gillett and the Gillett community. Ironically, during Pagel’s public meeting, the Bond Counsel Attorney, Lynda Templen, boasted of her success in securing $40 million-plus in bond funds for the Zahn expansion,” DeWitt said.
Templen, an attorney at Husch Blackwell in Milwaukee, didn’t respond to a reporter’s request for comment.

Town of Gillett Town Board Supervisor Marty Luther acknowledged discussions brought by a crowd of concerned residents to town board meetings several years ago.

“It got to be pretty heated meetings. A bunch of people from town were there,” Luther said.

The Town of Gillett wasn’t directly involved with construction of the renewable natural gas project, he said. “We didn’t really have anything to do with it, but those bonds have to be issued through the municipality where it’s being done,” he said. “Zahn’s is a little part of it. It’s actually a different company completely that funded and built the biogas facility,” he added. He said he heard WI RNG Hub was sold to another company and that they were constructing a RNG pipeline through the Town of Green Bay.

Luther said the government is auditing the project, but this couldn’t be confirmed.

According to UMB’s notice, UMB Bank N.A. serves as trustee for the “Town of Gillett Tax-Exempt Solid Waste Disposal Revenue Bonds for a WI RNG Hub North LLC Renewable Natural Gas Production Plant Project Series 2021 A.” Proceeds from the bonds issued were used to fund the development, construction and installation of an anaerobic digester for renewable natural gas production.

“[WI RNG Hub] has notified [the Town of Gillett] and bondholders that it will not be able to pay the full amount of the principal and interest payments,” the notice said. It referred to “certain Loan Default Events and Events of Default under the Financing Documents [that] have occurred and are occurring.”

An expected payment of $1.735 million in principal that was due June 1 won’t be paid, the notice said. UMB said it would draw $82,002 from the Debt Service Reserve Fund and $436.12 from an interest account to make the full June 1 interest payment. About $4.1 million remained in the Debt Service Fund after the $82,000 was used, UMB said.

Asked if the town was on the hook for the amount being paid from the Debt Service Reserve Fund, Luther said, “That would be quite a project if the Town was responsible. The Town would be bankrupt. Those bonds are issued by the government.”

Luther said the plan also involved building a renewable natural gas pipeline. Aerogy LLC, a portfolio company of Macquarie Capital, built the anaerobic digestion facility at Zahn’s Farm, according to a news announcement.

Robert Zahn, owner of Zahn’s Farm, reportedly said in a Macquarie Capital news announcement from several years ago, “We look forward to working with our partners to bring this exciting project to fruition. Macquarie’s expertise coupled with DVO technology, one of the leading digester technology providers…should make for a successful initial project with significant room for growth.”

In January 2022, Macquarie Capital said, “The facility will convert manure into RNG and is anticipated to produce over 200,000 MMBTu of RNG per year,” The project used anaerobic digesting technology from DVO Inc.

Michigan-based P&E Solutions was expected to provide engineering, procurement and construction services.

“Aerogy is examining further opportunities to expand the facility to additional farms in the region and serve as a hub for other anaerobic digestion projects,” the clean-energy company said. It invests in ways to reduce carbon emissions with a goal of net-zero emissions by 2050.