Cadiz Closes Financing, Secures Development Capital For Water Supply Projects

Rhea-AI Summary

Cadiz, Inc. secures a $57 million credit agreement, with $20 million allocated for water supply project development in Southern California. The financing strengthens the company's financial position, extends debt maturities, and receives strong support from shareholders and lenders, notably Heerema International Group Services SA.

Financial Analyst

The $57 million credit agreement for Cadiz, Inc., particularly the $20 million allocated for water supply project development, represents a significant capital infusion aimed at enhancing the company's liquidity and operational capabilities. This strategic move is likely to have a positive effect on Cadiz's financial health by extending debt maturities to 2027, thereby reducing short-term liquidity risk and improving its debt profile.

The involvement of Heerema International Group Services SA as the lead investor and the strong support from existing lenders and shareholders could be interpreted as a vote of confidence in Cadiz's business model and future prospects. This is especially pertinent given the context of California's recurring drought issues and the strategic value of water supply infrastructure projects.

The convertible feature of the additional $20 million loan at $5.30 per share introduces a potential equity dilution for current shareholders but also indicates a possible upside for the lender if the company's stock performs well. This financial instrument could be a double-edged sword, balancing immediate capital needs with future equity considerations.

Market Research Analyst

Cadiz's acquisition of ATEC Water Systems and the development of the Northern Pipeline are strategic moves that position the company to capitalize on the increasing demand for water in Southern California. The projected start of water delivery by 2026 could allow Cadiz to secure a first-mover advantage in the region's water supply market. The announcement of the execution of water supply agreements at competitive prices indicates that Cadiz is successfully converting its resources into tangible revenue streams. This progress is likely to be closely monitored by investors as it could impact the company's market share and competitive positioning within the industry.

Moreover, the conversion of an idle gas pipeline into a water conveyance system is an innovative approach that may offer cost efficiencies and expedite project completion. The ability to transfer and exchange water between key counties could make Cadiz a pivotal player in regional water management, potentially creating long-term value for stakeholders.

Environmental Analyst

The development of water supply projects by Cadiz, Inc. is of high environmental and social importance, considering the context of drought-prone Southern California. The company's ownership of significant water resources in the Mojave Desert and the planned pipeline infrastructure could provide a critical solution to water scarcity issues in the region.

However, environmental concerns related to the extraction and transportation of water from desert aquifers must be addressed. The impact on local ecosystems, groundwater levels and long-term sustainability are factors that investors should consider, as these could affect the company's social license to operate and potentially lead to regulatory challenges. The long-term success of such projects depends not only on financial and operational performance but also on environmental stewardship and community acceptance.

$57 million credit agreement includes $20 million to support development and construction of water supply projects before the next drought.

LOS ANGELES and GENEVA, March 6, 2024 /PRNewswire/ -- Cadiz, Inc. (NASDAQ: CDZI / CDZIP, the "Company") announced today that it has completed a financing transaction that significantly strengthens its financial position and provides the Company with liquidity to accelerate development of its water supply projects in Southern California. The financing includes a new $20 million loan to fund operations and capital expenses associated with development of the Company's water supply projects and extends all debt maturities to 2027.

The transaction, led by the Company's largest shareholder, Heerema International Group Services SA ("Heerema"), received strong support from the Company's existing lenders and shareholders. With the completion of this transaction, the Company has a solid financial foundation backed by its lead strategic investor with a substantial capital base committed to the long-term growth of the Company.

"This financing puts us in position to be delivering water before the next drought hits California," said Susan Kennedy, Chairman and Chief Executive Officer of Cadiz.

Cadiz owns 45,000 acres of land in the Mojave Desert with 2.5 million acre-feet of water supply, 1 million acre-feet of water storage capacity and more than 200 miles of pipeline assets that stretch across Southern California. In 2022, the Company also acquired ATEC Water Systems, a producer of specialized groundwater filtration systems.

The aquifer system at Cadiz presently holds at least 30 million acre-feet of water – more than the design capacity of Lake Mead, the largest reservoir in the U.S. In 2020 the Company acquired a 220-mile idle gas pipeline from El Paso Natural Gas that transects other major water systems in Southern California ("Northern Pipeline"). To convert the pipeline to carry water, the Company needs to build pumping stations and connection facilities that enable water to be transferred and exchanged between public water agencies in San Bernardino, Kern and Riverside counties. 

The Company anticipates project design, engineering and development of the Northern Pipeline will take place in 2024 with construction beginning in 2025 and commencement of water delivery as early as 2026. The Company recently announced execution of water supply agreements for delivery of 10,000 acre-feet per year (AFY) via the Northern Pipeline at a price not to exceed $1,650 per AFY. The Company expects to complete negotiations for delivery of the full capacity of the Northern Pipeline (25,000 AFY) by mid-2024.

The additional $20 million loan provided by Heerema will carry a 7% PIK coupon and be convertible into Cadiz common stock at a price of $5.30 per share. The Company has filed a Current Report on Form 8-K with the U.S. Securities and Exchange Commission providing additional information about the new financing and related transactions, including the applicable transaction documents. Investors are encouraged to read the Current Report and its exhibits for further information concerning the transactions. 

About Cadiz, Inc.
Founded in 1983, Cadiz, Inc. (NASDAQ: CDZI) is a California water solutions company dedicated to providing access to clean, reliable and affordable water for people through a unique combination of water supply, storage, pipeline and treatment solutions. With 45,000 acres of land in California, 2.5 million acre-feet of water supply, 220 miles of pipeline assets and the most cost-effective water treatment filtration technology in the industry, Cadiz offers a full suite of solutions to address the impacts of climate change on clean water access. For more information, please visit https://www.cadizinc.com. 

About Heerema
The Heerema companies deliver solutions and create sustainable value on projects within the offshore energy industry. Heerema manages the entire supply chain of marine project execution, offering solutions that include design and front-end engineering, planning, logistics, project management, and the execution of sustainable projects worldwide. Heerema owns and operates 3 of the world's five largest heavy lift sea vessels, two are equipped with zero-emissions technologies. Heerema is on a mission to make the impossible possible offshore as the leading renewable energy marine contractor. To learn more about Heerema, please visit: https://www.heerema.com .

FORWARD LOOKING STATEMENTS: This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, the ability of the Company to achieve its strategic objectives with the proceeds of the new financing, including the Company's objectives to complete final project design, engineering and related permitting of the Northern Pipeline in 2024, begin construction in 2025 and commence water delivery as early as 2026, which ability is subject to significant business, economic and competitive risks and uncertainties, many of which are beyond the control of the Company. Although the Company believes that the expectations reflected in our forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Factors that could cause actual results or events to differ materially from those reflected in the Company's forward-looking statements include potential delays in achieving our strategic objectives resulting from delays in the supply chain for materials or other factors detailed in the Company's Securities and Exchange Commission filings. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. 

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SOURCE Cadiz, Inc.

FAQ

What is the purpose of the $57 million credit agreement announced by Cadiz, Inc.?

The credit agreement includes $20 million to support the development and construction of water supply projects in Southern California before the next drought.

Who led the financing transaction for Cadiz, Inc.?

The financing transaction was led by Heerema International Group Services SA, the company's largest shareholder.

What assets does Cadiz, Inc. own related to water supply projects?

Cadiz owns 45,000 acres of land in the Mojave Desert with 2.5 million acre-feet of water supply, 1 million acre-feet of water storage capacity, and more than 200 miles of pipeline assets in Southern California.

What acquisition did Cadiz, Inc. make in 2022?

In 2022, Cadiz acquired ATEC Water Systems, a producer of specialized groundwater filtration systems.

What is the anticipated timeline for the development of the Northern Pipeline project by Cadiz, Inc.?

The project design, engineering, and development of the Northern Pipeline are expected to take place in 2024, with construction starting in 2025 and water delivery potentially commencing in 2026.