Weekly Preliminary OS Climate Risk Review (1/13/22)

By January 20, 2022 No Comments

We first focused on NewLife Forest Restoration LLC in October 2021 when the Arizona Industrial Development Authority originally brought the offering to market. This week AZIDA returns to the sales calendar after revising its initial offering based on feedback from potential investors. Since they are on the sales slate, we want to take the opportunity once again to highlight NewLife’s important work. In this piece we’ll cover how Arizona is addressing wildfire risk through the Four Forest Restoration Initiative, how NewLife fits into the solution, and the economic benefits that NewLife is promoting through the expansion of their operations in socioeconomically-stunted communities. 

Arizona Industrial Development Authority Revenue Bonds (NewLife Forest Restoration, LLC) $191,937,799

Image showing the 2.4 million acre Four Forest Restoration area as well as NewLife’s timber processing facilities denoted by the red dots. In the Restoration Area, the cumulative expected property value loss over the next 10 years is 3.7%, with a 500-year fire putting 49% of property value at risk.

Four Forest Restoration Initiative

The increasing size, severity, and frequency of unnatural wildfire over the last 15 years in Arizona, as well as predicted climate change have catalyzed the desire for action. — US Forest Service one-page overview of the initiative.

Established as a collaboration between government, community, environmental groups, and industry stakeholders, the Four Forest Restoration Initiative (4FRI) is large-scale restoration project by the US Forest Service (USFS) designed to reduce the risk of catastrophic wildfires by restoring the forests of Arizona to a more natural state. Arizona forests have become overgrown and unhealthy because of logging bans enacted in the 1990s on federal forestlands to protect various endangered species. As a result, AZ forests consist of thin trees surrounded by dry underbrush which make them vulnerable to unnaturally severe forest fires. This problem has been compounded by the development of residential structures near forested areas; when small fires spring up (which are a natural, healthy part of forest ecosystems), they are extinguished — leading to the accumulation of underbrush which act as fuel and intensifies wildfires (Sustainability-Linked Bond Framework, pg. 4).

To address the forest mismanagement and mitigate the wildfire risks the USFS is pursuing various restoration efforts, one of which is the thinning of forests by removing smaller trees and underbrush. An example of the restoration work can be seen on page 6 of the original preliminary statement. As part of Phase I of the initiative, NewLife was awarded a contract to harvest 300K acres over a 10-year period. USFS intends to approve 881,000 acres for cutting over the next 20 years. 

The Company and Use of Proceeds

Business and industries will play a key role in this effort [4FRI] by harvesting, processing, and selling wood products. This will reduce the overall restoration costs and provide restoration-based job opportunities (Sustainability-Linked Bond Framework, pg 5).

NewLife was awarded the largest contract by the USFS to harvest trees and implement the aforementioned forest thinning. With its timber rights, NewLife harvests and processes the materials at their mill facilities — turning low-quality wood timber into various products, including interior and exterior wood paneling and wood chippings for animal bedding and landscaping. In addition, they sell slash (a timber by-product) to a wood pellet manufacturer and to Novo BioPower, a 28 MW biomass power plant in Snowflake, AZ. Beyond the economic benefits, wood pellets are a biomass replacement for coal and promote climate change mitigation efforts. 

The ability of NewLife to turn the timber harvest into an economically viable product is critical to making forest restoration a sustainable endeavor that isn’t reliant on subsidies. The Use of Proceeds for this bond series fund a myriad of things, but include equipment upgrades at their facilities to make wood processing more efficient and cost-effective. 

Job Opportunities Align with Community Needs

“Bellemont and Heber are both economically underdeveloped regions of Arizona that will benefit from the Company’s investment [in facilities and jobs] POS pg. 2.

The company operates plants in Bellemont, Heber, and Williams Cities and by 2023 aims to have more than 300 employees working on their harvesting teams and at processing facilities. The communities where the processing facilities are located have relatively high Social Impact Scores stemming from their underlying demographics.

Table shows socio-economic metrics for the cities where NewLife’s facilities are located. The cells contain the specified metric and the national percentile ranking in parentheses. 

The table above highlights some of the social and economic challenges these communities face. For example, in Williams City (which is home to NewLife’s GPR Mill) 23% of the community lives below the poverty line (85th percentile nationally), and per capita income is $24,557 (39th percentile nationally). Currently NewLife employs ~100 people across its facilities and operations and with the 4FPI slated to continue for the next 20 years, they are investing in the means of production to take advantage of this timber opportunity. The additional jobs that the company will bring to the area has the ability to make a positive impact on communities that are in need of economic opportunities. 


NewLife is committed to creating safe and meaningful jobs, and revitalizing and growing communities. Our mission is to implement sustainable forestry practices in Arizona’s 4 national forests and reduce the risk of catastrophic wildfires. — NewLife Forest Restoration’s website

Investing in this bond series is an opportunity to support Arizona’s wildfire mitigation efforts by providing NewLife with capital resources to continue their vital work. NewLife has played an essential part in the Four Forest Restoration Initiative thus far by restoring over 15,000 acres, and they are well positioned to continue to make a positive impact. At the same time, the economic growth driven by operations expansion is serving communities that are currently lacking robust job opportunities.

Honorable Mentions

Henderson LID No. T-21 (Black Mountain Ranch), NV (risQ Score 2.3, Wildfire risQ Score 3.5) $14,060,000

$14 million in proceeds for the improvement, acquisition, and construction within this 203-acre Local Improvement District, located southeast of Las Vegas in the City of Henderson, Nevada. The proceeds are secured by all assessable property within the District. The land was previously owned by Black Mountain Golf & Country Club and transitioned through a bankruptcy sale. The total cost of property acquisition was $76,400,000 (pg. 14). The POS does a good job of detailing the property, however, neglects to inform investors and stakeholders of the potential climate risQ.

Henderson LID No. T-21 has a high Wildfire risQ Score of 3.5. The District ranks 92nd percentile nationally for property losses from wildfire and 100th percentile statewide, with a 500-year event driving ~61% of property losses. Knowing how much the District is worth along with improvement costs, neglecting to address wildfire to any degree seems like a major misstep. In June of last year, Henderson experienced the largest fire in recent years. A four-alarm wildfire burned through a mobile home park, propelled by 40 mph wind gusts. Henderson’s close neighbor, Las Vegas, has seen a significant amount of wildfires in recent years. Remember, wildfire risQ has secondary effects that can exist miles away from the blaze. Smoke and pollutants can travel for miles and blanket areas devoid of any flame. This can have negative health effects on multiple populations miles away (Persistent Health Obstacles Score 54). A brief sentence on drought without actionable planning (pg. 28)—which projections predict severe drought past the bond’s maturity in 2051—doesn’t tell the full story of the District’s climate vulnerability.

Washington School District, UT (risQ Score 3.6, Wildfire risQ Score 4.4) $33,105,000

Keeping with our wildfire theme this week draws our attention to Washington School District (WSD) located in Washington County, Utah. Headquartered in St. George, WSD is the eighth largest school district within the state, with 51 schools and ~3,832 employed by the District (pg. 15-17). The bonds are being used for construction projects and the repayment of other proceeds secured by the state of Utah (pg. 5). Unfortunately for the School District, there’s no mention of climate change within the 200-page POS. As wildfire season becomes a year-round occurrence, it can no longer be pigeonholed into a few months, especially in Utah. WSD (Wildfire risQ Score 4.4) ranks 100th percentile for property losses driven by wildfire. A 100-year event sees ~32% property losses while a 500-year event drives ~91% property losses.

On August 29th, the Oak Grove Fire started in the Dixie National Forest and consumed close to 700 acres of land within Washington County. This event goes unmentioned inside the POS. While the repayment is guaranteed by the State, these bond agreements are based upon business-as-usual practices and procedures at that time. With severe and extreme drought conditions projected through 2050, even a prescribed fire could potentially spread and redefine the State’s normalcy.

Claremont McKenna College, CA (risQ Score 2.0,Wildfire risQ Score 3.1) $300,000,000

Claremont McKenna College ranks in the 95th percentile nationally for property VaR from wildfire at a 20 min drive time; these fires pose both a physical and health risk. The Bobcat Fire, which ravaged Angeles Forest in 2020, was just northwest of the School. Additionally, the percent months with extreme drought conditions by 2030, 2040, and 2050 are all in the top 5% nationally under RCP 8.5. These bonds are partially secured by the School’s revenue. The POS notes that impact to their operations (including damage to their property) may adversely affect their revenues—which subsequently would affect their ability to secure the Bonds (pg. 10). However, the discussion of climate risk is disproportionate to the area’s risk, with only a brief mention that fire and seismic activity may damage facilities (pg. 10) and no mention of drought. The POS also neglects to discuss wildfire mitigation efforts. The City of Claremont’s Sustainability Plan addresses drought conditions; however, the plan is equally sparse on its discussion of wildfires. 

Once again, we see the intersection of housing, race, and wildfire risk. The College’s student body is around ⅗ nonwhite (Nonwhite/Minority Population Score of 87) and the area faces high costs of living (Percent of Income Spent on Housing Score of 90). Minority communities and housing-cost burdened communities are disproportionately affected by wildfire risk. The lack of acknowledgement of the risk and its impact on the community in the POS seems ill-advised.