Private equity firm Ara Partners announced the successful closing of a $335 million non-recourse financing of a first-of-its-kind U.S. permanent magnet manufacturing facility, undertaken by Ara Partners and its portfolio company Vacuumschmelze (VAC). This deal marks a vital step in advancing the U.S. domestic supply chain for electric vehicles, aerospace and defense, renewable energy, etc.
This financing follows the announcement in January 2023 of the signing of a binding agreement between e-VAC and General Motors (GM) for e-VAC to build a North American factory to make rare earth permanent magnets to be used in a wide range of GM’s electric vehicles. And permanent magnets are a vital part of electric vehicle motors.
This facility will use locally sourced raw materials and will support GM for a minimum of 10 years. And the support by the Coordinating Lead Arrangers for the transaction underscores the market’s confidence in Ara Partners’ and VAC’s ability to create a world-class manufacturing hub advancing the energy transition.
In September of 2023, VAC had received a Defense Production Act Title III grant from the Department of Defense (DoD), catalyzing Ara’s investment in October of 2023. And the funding was awarded via the Manufacturing Capability Expansion and Investment Prioritization (MCEIP) organization in the Office of the Assistant Secretary of Defense for Industrial Base Policy. And the MCEIP prioritizes and invests in industrial development and production critical for protecting national security. In March 2024, VAC was also awarded a $111.9 million Qualifying Advanced Energy Project Tax Credit to advance the construction on the facility. VAC also previously applied to the DOE’s Loan Programs Office.
Ara Partners operates from offices in Houston, Boston, Washington, D.C., and Dublin. Ara Partners closed its third private equity fund in December 2023 with over $2.8 billion in capital commitments. And as of March 31, 2024, Ara Partners had approximately $6.2 billion of assets under management.
The facility, located in Sumter County, South Carolina, is owned by e-VAC Magnetics, a recently formed U.S. entity wholly owned by Ara Partners.
The Financing was led by BMO, Mitsubishi UFJ Financial Group (MUFG), Canadian Imperial Bank of Commerce (CIBC), Coöperatieve Rabobank U.A., and Société Générale S.A. as coordinating lead arrangers. And BMO is acting as Administrative Agent, and MUFG acted as Hedge Coordinator.
PEI served as Exclusive Financial Advisor to Ara Partners and VAC. And Latham & Watkins served as borrower counsel while Milbank served as lenders counsel.
KEY QUOTES:
“We are thrilled with the finance market’s appetite for this first-of-its-kind facility, a cornerstone in solidifying the United States electric vehicle value chain, and look forward to continuing to work with our lending partners. We are grateful for the support from our local and state governments and the federal initiatives that have made this project possible, and we extend our sincere thanks to General Motors for being a key partner in this endeavor.”
– Tuan Tran, Partner at Ara Partners
“MCEIP investments aim to incentivize support from across the U.S. Government, industry, academia, and the greater investment community. This is a textbook example of a DOD investment that acted as a catalyst for other federal and private partners to strengthen and secure the U.S. magnet supply chain.”
– Joe Sopcisak, Technical Director for MCEIP
“We would like to thank our government partners at DoD and DOE, whose rigorous due diligence efforts were instrumental in catalyzing this project and provided the stamp of approval the private sector needed to finance this important component of the electric vehicle supply chain in the United States.”
– Erik Eschen, CEO of VAC
“We are extremely proud of our support of Ara Partners and VAC and look forward to the successful construction and future operations of the e-VAC permanent magnet manufacturing facility. Our leadership role in this financing is an example of BMO’s dedication to driving progress in the energy transition and aligns with our purpose, to Boldly Grow the Good in business and life.”
– Carrie Cook, Head, Global Investment and Corporate Banking, BMO Capital Markets
“MUFG is pleased to have had a leadership role in this marquee transaction that supports the growth of EV manufacturing in the United States. Ara Partners’ focus on decarbonization in the industrial sector is unique and we look forward to supporting them, VAC and General Motors on other similar projects in the future.”
– Dan Seltzer, Head of Infrastructure at MUFG’s Project Finance team
“Ara Partners and VAC have proven that advanced permanent magnet manufacturing in support of the energy transition and green economy can meet the underwriting standards of leading global commercial banks. By utilizing optimized construction financing, Ara and VAC can press their competitive advantage, expanding production of a critical component in the electric vehicle supply chain.”
– Sky Fabian, Partner at PEI Global Partners
“This innovative project financing for a novel manufacturing facility not only reflects the confidence of top-tier project finance banks in Ara Partners and VAC but also showcases how non-recourse financings can support the expansion of the domestic manufacturing sector. The transaction further highlights the banking community’s robust appetite for loan opportunities that accelerate the energy transition and e-mobility. The PEI team was delighted to assist Ara Partners and VAC during the process.”
– Karsten Schmitz, Managing Director at PEI
