One of AppHarvest’s largest farms risks foreclosure in creditor lawsuit demanding payment
Kentucky-based AppHarvest risks losing one of its largest greenhouse facilities to foreclosure if it doesn’t reach a resolution with a creditor demanding over $66 million, the company announced in a public filing Monday.
In early May, a creditor that previously loaned AppHarvest over $90 million to help build a 60-acre, tomato-growing greenhouse in Richmond alleged that construction delays and cost overruns had caused AppHarvest to violate the loan terms and default on the loan agreement. AppHarvest said it plans to contest those allegations.
The creditor, a company called CEFF II AppHarvest Holdings, demanded immediate repayment of what remains of the loan plus interest — about $66.7 million — or the Richmond farm would be taken as collateral. CEFF II AppHarvest Holdings is an affiliate of Equilibrium Sustainable Foods. The creditor filed a foreclosure complaint on the facility in Madison Circuit Court on May 30. AppHarvest has 20 days to respond in court or face a default judgment.
“We believe that we are in full compliance with the loan terms,” said Travis Parman, AppHarvest’s chief communications officer, in a statement. “We are working to resolve the issue directly with Equilibrium, which we believe is based on their misunderstanding of the facts.”
A default on the loan for the Richmond facility could lead to the commencement of foreclosure proceedings on the company’s other 60-acre tomato growing facility in Morehead — the company’s oldest and most productive facility.
The alleged default and foreclosure proceedings on the Richmond facility come less than a year after AppHarvest — which grows large quantities of fruits and vegetables in massive, climate-controlled greenhouses and employs hundreds of people across four Kentucky towns — said in public filings that it was running low on cash and disclosed “substantial doubt” about its future.
An inability to resolve any alleged loan defaults associated with the Richmond or Morehead facilities would cause an “adverse effect” on AppHarvest’s financial condition and could cause the company “to become bankrupt or insolvent,” the filing said.
The Morehead farm
Construction of the Morehead facility — which was completed in 2021 and has regularly employed around 300 people — was funded through a loan agreement with Rabo AgriFinance.
That loan agreement includes “cross-default provisions” that would allow Rabo to demand full payment of the loan and begin foreclosure proceedings on the Morehead facility if AppHarvest were to default on any of its other loans, previous public filings said.
AppHarvest has yet to receive any written notice from Rabo that the agriculture financing company intends to exercise the agreement’s cross-default provisions, the company’s filing Monday said.
Aside from the tomato growing facilities in Morehead and Richmond, the company also has smaller facilities in Berea (growing salad greens) and in Somerset (cucumbers and strawberries).
Of the more than $13 million in revenue the company generated in the first quarter of this year, $11 million came from tomato sales, public filings showed. The farms in Richmond, Somerset and Berea are much newer and have been working in recent months to ramp up production.
In April, the Berea facility identified an outbreak of the disease-causing bacteria listeria, forcing the company to remove plants and disinfect the farm. The company’s latest quarterly filing said the bacteria outbreak could affect the company’s produce sales in the second quarter.
The alleged default
The creditor for the Richmond facility, CEFF II AppHarvest Holdings, alleged AppHarvest violated its loan agreement with the company by not paying for cost overruns, not meeting construction deadlines and having existing mechanics’ liens against the facility, showed a copy of the default notice included in court filings.
In a quarterly filing released in early May, AppHarvest said the alleged defaults “have no basis and are without merit.”
CEFF II AppHarvest Holdings told the greenhouse company that the latest construction forecast had an unaccounted $5 million “cost variance.” Additionally, the facility was supposed to be completed by March 31 but during an April site visit a representative from the creditor found the facility was not complete and AppHarvest representatives said completion would likely be in August or September.
Dalsem Greenhouse Technology, a Netherlands-based company that manufactures and installs the high tech greenhouse equipment used by AppHarvest, filed mechanics’ liens with the Madison County clerk demanding over $14 million for work done on the Richmond facility. Having any liens on the facility is grounds for default, the creditor told AppHarvest.
When asked about the mechanics’ liens in March, Parman wrote in an email that Dalsem had yet to complete their work to AppHarvest’s satisfaction.
“While we disagree with their recording a lien for incomplete work, we are working together to ensure they complete the project,” Parman said at the time.
This story was originally published June 6, 2023 at 2:36 PM.