LOUISVILLE, Ky. (WDRB) – Former Gov. Matt Bevin approved changes in 2018 that weakened Kentucky’s potential to demand repayment of its $15 million investment in Braidy Industries, the company planning a large aluminum plant near Ashland, Ky., according to records obtained by WDRB News.
The changes Bevin and other state officials agreed to in May 2018 meant that Braidy Industries would not face having to return the public funds if it didn’t start construction by June 30, 2018, among other relaxed provisions.
Recent turmoil at the company, which is still short of the $1.7 billion needed to finance the eastern Kentucky project, has raised questions about the state’s options to recover its 2017 investment, which Bevin championed and state lawmakers approved in the waning hours of the 2017 General Assembly.
Braidy Industries said last week that its board “removed” company founder Craig Bouchard as the company’s chairman and CEO, a move Bouchard called “without basis.” On Monday, Bouchard said on Facebook that he has the power to replace the other five members of the company’s board “at any time.”
“They picked the wrong person to fight,” Bouchard said.
The company’s board says it’s still committed to the project and to securing funding for it. Gov. Andy Beshear’s office said Monday his administration is “monitoring the situation with Braidy Industries.”
Payback terms relaxed
When Kentucky invested $15 million in Braidy Industries’ first funding round in May 2017, the deal included a handful of provisions letting the state demand its money back if things did not go as planned.
Bevin, who did not respond to a request for comment for this story, approved changes to those terms on May 7, 2018, less than a month before Braidy Industries held a “groundbreaking” ceremony at the site on June 1, 2018, records show.
Records indicate the changes were requested by Braidy Industries. Bouchard did not respond to a request for comment, while the company offered no comment as of publication.
One of the changes effectively nullified a requirement that the company start construction on the aluminum plant by June 30, 2018. It achieved that by giving Braidy Industries an alternate way to satisfy the condition -- by acquiring an existing building near the mill site to house its Veloxint subsidiary, which Braidy Industries has done.
The amendment also said “site preparation” work, instead of construction, would alternately satisfy the June 30, 2018 requirement. Braidy Industries officials showed WDRB in November how they have drilled into the ground to locate bedrock for the mill’s foundation and erected a fence around the site, among other activities.
The amended clawback terms also give Braidy Industries more time to “invest” – a term that is not explicitly defined -- at least $1 billion in building and equipping the aluminum mill. That deadline is now Dec. 31, 2020, instead of the original requirement of June 30, 2020.
The amendment also allows Braidy Industries to satisfy the requirement by “secur(ing)” a $1 billion investment “in a separately owned entity for the construction” of the mill by Dec. 31.
Other provisions limit the amount of investor money the company can spend on things other than the aluminum mill and require that Braidy Industries keep its headquarters and more than half of its employees and assets in Kentucky through June 1, 2022. Those were largely unchanged by the amendment.
Braidy Industries has warned investors in public filings that “any requirement to return capital to the Commonwealth of Kentucky could complicate efforts” to raise funding for the mill.
Bevin approved the changes immediately after his administration took a number of steps to assume direct control over decisions regarding the Braidy Industries investment in the spring of 2018, the records show.
The $15 million investment was made through Commonwealth Seed Capital, a state-owned seed fund that typically makes much smaller investments in innovative, Kentucky-based start-up companies.
Commonwealth Seed, established in 2001, has a separate board of directors who oversee its portfolio.
The moves in the spring of 2018 removed the Braidy Industries investment from the purview of Commonwealth Seed’s board and placed it under control of the Kentucky Economic Development Partnership, an organization chaired by the governor.
Jack Mazurak, a spokesman for the Kentucky Cabinet for Economic Development, told WDRB the move was prudent because Braidy Industries is so much larger than the Commonwealth Seed’s other investments.
“It was just a matter of providing additional transparency and more direct state oversight of that investment,” Mazurak said.
The Economic Development Partnership’s board, a 12-person group that includes state government cabinet heads and other appointees, also approved the changes to the terms on the same day Bevin signed the document, records show.
Even if Braidy Industries were to fail to meet one of the terms, there is no guarantee the company would have the cash to return $15 million to Kentucky.
But the company would be required to “maximize the assets legally available for” repaying the state, according to the terms.
Last week, Kentucky Attorney General Daniel Cameron’s office asked the economic development cabinet for copies of records related to Braidy Industries, including performance “milestones” for the state’s investment; communications between Bouchard and state officials; and documents about any loan between the company and Bouchard.
“The Attorney General’s Office is aware of the leadership transition within Braidy Industries and is actively engaged in learning more about the change to ensure that Kentucky’s investment in the company is protected and that the anticipated economic benefit to Eastern Kentucky comes to pass,” Cameron spokeswoman Elizabeth Kuhn said.