Sale of bond-financed fertilizer plant raises debt and competition questions

An OCI representative said the principal outstanding on the IFCo bonds is $838.745 million. Asked about the guarantee backing the bonds, the representative said OCI has no plans to transfer the bonds to another OCI subsidiary before the sale closes. The OCI guarantee will disappear at closing if Koch decides to keep or defease the bonds. Koch may also choose to repay the bonds. 

If Koch opts to keep the bonds, the bonds will stay with IFCo and may benefit from Koch’s higher credit rating, the representative said. 

Koch is rated AA-minus with a stable outlook by S&P Global Ratings and Aa3 with a stable outlook by Moody’s Ratings.

Nothing about the pending sale is disclosed on the Municipal Securities Rulemaking Board’s EMMA bond disclosure website. 

OCI announced it was selling all its interests in IFCo to Koch Ag & Energy Solutions in December. According to OCI, that sale as well as the divestment of half its equity holding in Fertiglobe came about after a global strategic review. The company expects both moves together to generate $6.2 billion of net proceeds and enhanced value for shareholders. 

The sale to Koch, which OCI plans to close sometime this year, has drawn criticism, particularly from the Iowa agriculture sector.

In a Des Moines Register OpEd last month, Iowa Farmers Union President Aaron Lehman noted that four corporations, including Koch, now control over 75% of the nitrogen fertilizer supply.

Lehman said the administration of then-Gov. Terry Branstad — whose lieutenant governor, Kim Reynolds, took over for Branstad when he became ambassador to China in 2017 — had argued that public investment in the IFCo plant would “pay off for Iowa farmers for decades” by increasing competition among fertilizer producers.

Lehman did not respond to requests for comment. A spokesperson for Reynolds did not respond to requests for comment. 

Lehman’s group, which opposed the public subsidy for the plant, has joined 18 other agricultural and policy groups in urging federal regulators to block the upcoming sale. 

Federal Trade Commission Chair Lina Khan visited Iowa last month to hear concerns from local farmers, telling the audience that America needs to keep its agricultural sector “fair, open and competitive,” The Gazette reported.

An FTC spokesperson said the FTC does not comment on pending mergers or acquisitions.

Iowa State Auditor Rob Sand has also raised concerns about the sale, saying Iowa taxpayers will be “on the hook” for the public subsidy and the cost of fertilizer will go up. Sand, Iowa’s only Democratic statewide officeholder, did not respond to requests for comment.

The plant now has about 260 full-time employees.

When the bonds and public subsidies were being debated, Branstad said jobs and lower costs for farmers by bringing fertilizer production onshore, reducing import costs, justified the state subsidies.

In 2013, former Gov. Branstad said at a public event, “At the start of this Iowa Fertilizer facility project, the unemployment rate in Lee County was 8%, highest in the state. That’s why my administration fought so hard to encourage the company to locate its fertilizer plant here.”

The state and local government incentives that lured OCI to Iowa included $96.5 million of Iowa Investment Tax Credits, which IFCo has not yet used; a 20-year property tax exemption from Lee County; Iowa sales tax refunds of $10.9 million; and the plant’s bonds, issued through the Midwest Disaster Area Bond Program, which was passed after 2008 storms struck the Midwest.

To support recovery from the storms, the program allocated to seven affected states tax-exempt private-activity bond authority that did not count against their PAB volume cap, including $2.6 billion to Iowa.

The program extended tax-exempt benefits to projects and developments that might otherwise not qualify under tax code rules.

The Iowa plant is one of two major fertilizer projects awarded financing through the Midwest disaster area bond program.

While the Iowa plant opened in 2017, the Midwest Fertilizer Company’s project in Posey County, Indiana, appears to be in limbo. According to the most recent EMMA filing for the $1.259 billion of bonds issued in 2013 through Posey County, the company purchased all the bonds in 2016 and continued to hold them in 2023 and intends to continue doing so while it continues to develop the project.

In the end, OCI invested roughly $2.5 billion in the Lee County plant, which cost over $3 billion to build. 

“This deal is yet another example of the consequences of short-sighted public policy focusing only on imagined benefits and ignoring the pitfalls,” the Iowa Farmers Union said in a statement following the announcement of the sale.