Blue Earth accelerates towards positive cash flow; Taylor raises $120 million, reveals strategic investors

By Kenneth Lim

Boston, Sept. 5 - Blue Earth Solutions, Inc. said its recently closed convertible placement will accelerate its path to positive cash flow.

Meanwhile, Taylor Capital Group, Inc. announced details of a $120 million sale of convertible preferred stock and subordinated debt.

Blue Earth speeds towards cash

Blue Earth closed a $14.13 million private placement of new 8% series C convertible preferred stock on Aug. 29.

The 14,130 preferreds were issued at an offering price of $1,000 per share.

The series C preferreds can be redeemed upon written notice at $1,100 per share. Holders may convert their preferreds into 160 shares of Blue Earth's common stock and a warrant to purchase 100 shares of its common stock at any time prior to Dec. 31, 2010 at a strike price of $8.00 per share.

Blue Earth common stock (OTCBB: BESN) closed at $7.95 on Friday, lower by 0.63% or $0.05.

If the company has funds legally available to pay the dividend, but fails to do so by Jan. 31 of the following year, then the missed dividend increases to $104 per share, or 10.4%.

The transaction included $13.43 million in cash and the cancellation of the $700,000 promissory note owed to JDC Group, Inc. JDC is a Florida corporation controlled by James Cohen Jr., a member of Blue Earth's board of directors, its vice president of sales and the son of its chief executive officer, Patricia Cohen.

Based in Delray Beach, Fla., Blue Earth offers an environmentally friendly process that reduces expanded polystyrene from landfills and other potentially hazardous sites and returns it to its original form.

Blue Earth did not need financing, but the company figured that the additional capital would bring it to positive cash flow sooner, James Cohen Jr. told Prospect News.

"This is going to sound a little arrogant, but we didn't need the money to roll out our organization's business model," he said. "But what it does is it speeds up our rollout by six months."

Blue Earth had initially planned to build out its plants only after cash from existing plants allowed it to do so, Cohen said. But the new capital will allow the company to skip some of the waiting, he said.

"Our financial model calls for funding from two sources; one is municipal, and the other is cash flow," he said. "This existing plant that I'm sitting in right now will be cash flow positive in October. The cash flow of this plant takes about six months to do a full recoupment of the capital investment, which means on the old model, every six months we'd be able to build the second plant. Then three months to build the third plant, then 45 days for the fourth plant. What happened here is as a result of taking this infusion of $14 million...it gives us the ability to build out on the equipment that have the longest lead time."

Beginning November, Blue Earth plans to add one new plant every month for the following six months with the help of the new capital.

"That's not counting on cash flow," Cohen said. "The cash flow at that point will be the gravy, so to speak."

The accelerated cash and cash flow will also allow Blue Earth to build up the company's infrastructure and handle the rapid growth that the company envisions, Cohen said. The goal is to have 60 plants operating by the end of 2010.

Blue Earth does not expect that it will need to raise additional funds anytime soon because cash will begin to flow from the plants.

"The only reason going forward that we need to raise funds would be for acquisitions [or other strategic investments]," Cohen said.

Cohen said the financing began with an institutional investor noticing that Cohen's family had put their own money into the company at a 20% premium to market at that time. The institutional investor also wanted to take part, as did some of the investor's friends.

"It was one of those things where one guy puts in, then he says his friends wants to put in some," Cohen said.

All the investors who took part in the placement are either institutional investors or high net worth individuals, but all are "green investors," Cohen said. "They are all people who have high visibility within the green space."

Cohen was pleased with the pricing of the deal.

"When deal was struck, it was at a 20% premium to the market at the time," he said. "The stock ran up coincidentally prior to the close, but it was after our commitments for the financing were done. And it was just that, because of the logistics of getting the fund, it took about three weeks to close, and in that three weeks the stock ran up."

Taylor raises $120 million

Taylor Capital said it placed $60 million of 8% convertible preferreds and $60 million of subordinated debt.

The perpetual preferreds have an initial conversion premium of 18% to Taylor's closing stock price on July 25. The initial conversion price if $10 per share. Taylor common stock (Nasdaq: TAYC) closed at $12.79 on Friday, up by 0.08% or a penny.

The company may call the preferreds in the fifth year, and the right to dividends could cease after the second year if the common stock exceeds certain levels.

The subordinated notes, which were issued by Taylor subsidiary Cole Taylor Bank, will pay a coupon of 10% and mature in eight years. They may be called after three years. Buyers of the notes will also receive five-year warrants to buy 900,000 shares of Taylor common stock at $10 per share.

Rosemont, Ill.-based Taylor is the holding company for Cole Taylor Bank.

The proceeds will be used to fund the company's strategic growth initiative and to strengthen the balance sheet and regulatory capital of the company and Cole Taylor Bank. The company expects to close the transactions by the end of September.

The investors in the preferred stock will include former LaSalle National Bank chairman Harrison I. Steans, USAmeribancorp, Inc. chairman Jennifer W. Steans, the Taylor family, several members of Cole Taylor Bank's management and a number of Chicago-based investment firms and individuals, the company said in a statement.

Harrison and Jennifer Steans are expected to join Taylor's board of directors. Harrison Steans will also chair a newly created executive committee.

"The signing of these definitive agreements marks an important step toward achieving our strategic growth plan," Taylor chairman Bruce W. Taylor said in the statement.

"The new capital committed by these investors will support the accelerated growth we have experienced since more than doubling the size of our commercial banking team. In addition, the partnership with the Steans and the relationships established with other Chicago area investors through these offerings, will be important parts of the foundation we are building to be Chicago's premier business bank."

Harrison I. Steans also stated: "My daughter, Jennifer, and I are delighted to be joining the Taylor family in backing Mark Hoppe and Cole Taylor's superb management team. We are dedicated to helping Cole Taylor Bank become the bank of choice - the relationship bank - for businesses throughout metropolitan Chicago. The management team is betting on the success of that endeavor and we are betting on them."

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