LOUISVILLE, Ky. (WDRB) – Braidy Industries, the start-up aluminum company in which Gov. Matt Bevin invested $15 million of Kentucky taxpayer money, loaned about $15 million to its founder and CEO Craig Bouchard earlier this year so that Bouchard could, in turn, buy more stock in Braidy Industries, the company said Tuesday.
In what the company described as Bouchard’s “heroic act of selflessness and sacrifice,” the financial maneuver ensured Braidy Industries was able to complete its acquisition of a smaller technology company co-founded by one of Braidy Industries’ board members, the company said.
Braidy Industries plans to build a state-of-the-art aluminum mill in Ashland, Ky. at a cost of nearly $1.7 billion. The mill, which would churn out low-cost aluminum for cars, planes and other uses, promises about 600 high-paying manufacturing jobs in a region hard-hit by job losses in recent decades.
Kentuckians provided $15 million of the company’s first $20 million in capital in May 2017 as part of Bevin’s effort to land the plant in the commonwealth.
The company is now trying to raise up to $500 million more from investors by the end of the year so it can finance the construction of the mill, which it hopes to finish in 2020.
Bouchard loan closed gap in previous investment round
Braidy Industries first disclosed the $15 million loan to Bouchard in September, but it didn’t fully explain the purpose of the loan until Tuesday.
In the statement, the company said the loan was necessary so that Braidy Industries could acquire Veloxint, a “lightweighting solutions company producing some of strongest and stiffest metal ever manufactured.”
Veloxint was co-founded by Braidy Industries board member Christopher Schuh, head of the materials science department at the Massachusetts Institute of Technology.
Braidy Industries plans a manufacturing operation for Veloxint, which it said could employ up to 150, adjacent to its planned aluminum mill in Ashland.
To keep the Veloxint deal on track in March 2018, Braidy Industries needed to raise $75 million in its second private stock sale last spring, but came up $18.5 million short of the $75 million threshold, the company said.
So Bouchard bought $18.5 million in Braidy Industries shares, paying for the bulk of them with $15 million that the company lent to him in a transaction approved by the Braidy Industries board (whose membership Bouchard controls).
Loans from companies to executives are generally frowned upon for non-family enterprises, and they are illegal for publicly traded companies, which Braidy Industries could become as soon as early next year.
“As a privately owned company, this was an entirely permissible transaction entered into in due course and without controversy,” Braidy Industries said in its statement Tuesday.
Bouchard has repaid $12 million of the interest-bearing $15 million loan and expects to fully repay it in “in the next several months” and before Braidy Industries would list its shares on the stock market, according to the statement.
Bouchard subsequently sold many of the shares he bought with company financing to other investors at the same $10 per share price that Bouchard paid for them, Jaunique Sealey, Braidy Industries’ vice president for business development, confirmed in an email.
“(E)ffectively Craig put himself on the line to serve as a bridge which allowed us to get the (Veloxint) merger done and allowed investors who couldn’t meet the merger deadline to complete their diligence,” she said.
Bouchard’s efforts to sell his personal shares at $10 per share ended before the company began its next round of stock sales at a higher price this fall, Sealey said.
Braidy Industries is now offering stock at $18 per share, which would value the company at $745 million if enough investors buy in.
Charles Elson of the University of Delaware, one of the experts who raised questions about the loan in a WDRB story in September, said Tuesday that such deals are “unusual” and regardless of the explanation, companies should use shareholder money “to help build the company” instead of as a source of personal financing for executives.
“The company’s not a bank,” said Elson, who is director of the John L. Weinberg Center for Corporate Governance at Delaware.
Braidy Industries offered other updates on the company’s progress in its statement Tuesday:
- The company has raised at least $12.1 million of the $500 million it hopes to fetch during the current stock sale, its third round of equity funding. The $12.1 million comes through NetCapital, a portal where anyone can invest as little as $108 in the company. The company has 560 investors in all.
- Braidy Industries said it’s satisfied with the progress of the $500 million stock sale. In addition to the $12.1 million raised on NetCapital, the company has $1 billion “in substantial indications of interest” from large investors. It didn’t say how much has been raised in all.
- While still needing financing to complete the aluminum mill, the company has spent $5 million in “ongoing construction” of the plant during the last two months. It held a ground-breaking ceremony for the mill in June.
- About a third of the mill’s capacity is spoken for through “binding contracts” with unnamed customers lasting 7 to 14 years. As of September, the company had only non-binding commitments from customers for the aluminum produced at the mill.
- The company has nearly $60 million of cash in the bank and no debt. “This is enough cash to scale and operate Veloxint and represents years and years of operating runway,” Braidy Industries said. “…We will be around for a long, long time.”