Issue of Loan Notes

RNS Number : 1792P

TEG Group (The) PLC

30 September 2013

 

The TEG GROUP Plc (AIM: TEG)

("TEG" or "the Group")

Issue of Loan Notes

TEG Group plc is pleased to announce that it has today issued 18 month Secured Discounted Loan Notes (the "Loan Notes") of £2.6 million to Bronsstädet AB, Weekcorp Limited and family interest of Rory Maw ("Rory Maw"), Chairman of the Company (together, the "Loan Note Holders"). Bronsstädet AB and Weekcorp Limited are both significant shareholders of the Company.

Use of proceeds

Whilst the Board has continued to make good progress with the trading of the business, as reported today, and in stabilizing the cash position of the business since the last equity placing in June 2012, there is continued delay in the release of retentions due in respect of the Manchester Contract.

All three of the operating facilities have passed their 52-week availability tests.  Acceptance has not been achieved, however, due to the requirement for some rectification works to the buildings and some services.  TEG is to carry out a small number of programmes of work to rectify these issues and the scope of works is currently being defined.  The Group has been advised that the majority of these works are covered by PI insurance and does not anticipate significant impact on the business plan.  However, the retentions of approximately £2.4m will not be released until such time as projects are completed and the Group is therefore expecting a further delay in cashflow.

The Company continues to work hard to secure their release and has put in place further resource to manage certain projects, aimed at bringing this contract to a conclusion. 

The delay in the release of retentions and the contemporaneous additional cash-out flows in relation to the rectification works has resulted in a working capital gap which the proceeds of the Loan Notes will be used to bridge during this period.   

Terms of the Loan Notes

The Loan Notes are repayable in full from the date of issue, or earlier in the event of default. The Loan Notes were issued at a 10 per cent. discount to the subscription price and will incur interest at 9 per cent. per annum, payable quarterly. .

Bronsstädet AB and Weekcorp Limited have each been issued with Loan Notes valued at £1.2 million and Rory Maw has been issued with Loan Notes valued at £0.2 million.

The Loan Notes Holders will each be paid an arrangement fee of 5.0 per cent. of the value of the Loan Notes which they have been issued.

It is intended that the Loan Notes are secured by way of cross-guarantees and debentures from the Company and all material subsidiaries. The Loan Notes will rank behind the security provided to the Company's senior debt provider, the Lloyds Banking Group.

As a Bronsstädet AB and Weekcorp Limited are substantial shareholders in the Company (as defined by the AIM Rules for Companies) and Rory Maw is Chairman of the Company, the issue of the Loan Notes are classified as related party transaction for the purposes of the AIM Rules.  The directors of the Company (excluding Rory Maw), having consulted with the Company's nominated adviser, N+1 Singer, that the terms of Bronsstädet AB, Weekcorp Limited and Rory Maw's participation in the Loan Notes is fair and reasonable insofar as shareholders are concerned.

Contact:
The TEG Group Plc	Tel: [phone]
Michael Fishwick, Chief Executive	www.theteggroup.plc.uk
Peckwater PR	Tel: [phone]
Tarquin Edwards	[e-mail]
N+1 Singer Advisory LLP (Nomad & Broker)	Tel: [phone]
Andrew Craig/Ben Wright

Editor's Notes:

TEG

TEG provides state of the art technology for handling organic wastes.  Its in-vessel composting ("IVC") system is one of the few approved technologies capable of treating animal by-product ("ABP") waste and it is now providing an anaerobic digestion ("AD") technology to produce power from food waste.  Plant economics are predominantly driven by the gate fees charged, rather than the value of the end product (compost).  

The AD plants also benefit from power sales and Renewable Obligations Certificates ("ROCS") or Feed-in Tariffs ("FITs").  TEG owns its composting technology, the TEG Silo Cage System, and has an agreement with UTS Biogastechnik GmbH ("UTS") for the provision of AD technology into the UK waste markets.  The TEG processes are an economic and sustainable alternative to landfill.

The TEG Silo Cage System

The Silo Cage system, one of the few technologies capable of treating organic waste, is a natural process producing compost as an end product.  The compost is an excellent soil conditioner that fertilises, retains moisture, provides structure and reduces the incidence of plant disease.  TEG's Silo-Cages are housed in self-contained buildings, suitable for urban environments, are not unsightly and are environmentally friendly.

Collaboration with UTS

UTS is one of the world's leading biogas companies offering services in the planning, construction, delivery and installation of biogas plants and their key components.  UTS has its own production facilities and service shops, technical design and development departments as well as mobile mechanical and biological customer service technicians to support the international client base. 

UTS also develops and sells specialized mixers, pumps and a variety of solid/liquid separating devices related to the biogas and agro/food markets. It is headquartered near Munich, Germany with subsidiaries in Italy, Hungary, Spain, the Czech Republic and now a rapidly developing company UTS Biogas Limited, to service the United Kingdom & Ireland markets.

TEG Biogas (Perth) Limited

TEG Biogas (Perth) Limited ("TEG Biogas Perth") is a joint venture company established by TEG with Albion LLP.  TEG Biogas Perth has constructed a 15,000 tonnes per annum AD plant at TEG's Glenfarg site to produce nominally 0.7MW of electrical power and 0.2MW of heat that is to be used by Binn Eco Park.  The facility has been in operation, generating revenues from waste sales and power generation since Quarter 1 of 2012.  It has become one of the leading AD operations in Scotland.

TEG Biogas (London) Limited (TEGBL)

TEG Biogas (London) Limited ("TEG Biogas London") is a joint venture company established by TEG with funding partners led by Foresight Environmental Fund LP.   TEG Biogas London is constructing a combined In Vessel Composting (IVC) and AD plant in Dagenham that will process approximately 50,000 tonnes per annum of organic wastes and will generate approximately 1.4MW of power, sufficient to power approximately 2000 homes.   The IVC plant is already in operation and it is expected that the AD plant will commence operations in Quarter 3 of this year.  The facility, which is currently on time and in line with budget, is due to be handed over to the client, TEG Biogas (London) Limited, in Quarter 1 of 2014. 

TEG received a contract to construct the facility valued at approximately £16m and will operate the facility after handover as part of a 15-year operating contract.  The Group has a minority shareholding in TEGBL, which has been established as a joint venture with various funding partners.

General

Customers include local authorities, waste management companies, food processing companies, farmers and landowners.  The Company's expanding market is driven by increasingly stringent EU and UK legislation regulating the treatment and disposal of organic waste.  Statutory targets for the diversion of waste from landfill increase annually through to 2020, increasing TEG's market opportunity year on year. 

 

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