Program 1 (IPS) Capital-Stack Reading
— reconciliation of Jack's two cash-flow workbooks
A new lender has asked whether they could underwrite the full ~$800M capitalization in a single facility. Before quoting, this note reconciles what Jack Whitmore / Galileo Capital actually modeled against the live IPS senior-debt mechanics, then states the rate posture any bid will be measured against — what we can absorb, what we target, what we want.
An earlier internal note (MIG c455ede0) suggested Jack hadn't modeled IPS at all. That reading was incomplete — only the May 21 Program 2 workbook was reviewed. The May 17 workbook (located after operator pointer) does model IPS, explicitly labeled "Investment Properties Solutions — IMMG" in its Table of Contents. This note is the corrected reading (MIG 1ee6832d).
| Workbook | Dated | Scope | Master Rate | Models |
|---|---|---|---|---|
| 36 Mo. Innov8 Gases Cash Flow 15 wells $240M investment | 17 May 2026 | Program 1 / IPS package | 5.5% senior | 15 wells · 36-month draw & service · IPS-only |
| 84 Mo. Innov8 Gases Cash Flow 100 Wells $555M Total Capitalization | 21 May 2026 | Program 2 (Sukuk + Equity + Debt) | 12% master | 100 wells · 84-month · Sukuk $125M + Senior $30M only |
Both workbooks list Galileo Capital Advisors SA (Lausanne, Switzerland; Rafael Toledano) as preparer. The Program 1 workbook explicitly carries the IPS / IMMG label on TOC line 2 — Jack did model the IPS facility; it just lives in its own dedicated file.
- Rate —
Budget_First_84_months.csv L3:Debt Financing for Processing Plants, 0.055, Interest Rate. 5.5% senior is the master input, also propagated to all 8 plant-loan stubs in theDOE_Loantab. - Total draw — $240,000,000 sequenced across nine months: $75M (M1) · $55M (M4) · $35M (M6) · $30M (M7) · $30M (M8) · $15M (M9).
- Asset perimeter — 15 wells: Texas Permian recompletes (1–2), Texas Permian new wells (3–5), JV High Creek wells 6–9 (50% WI), Arizona wells 10–15 (100% WI).
- Horizon — 36-month projection window (workbook is 84-month framework but IPS-relevant geometry stops at 36).
- Sponsor equity match —
Innov8 Resources Equity Escrow Deposit — 5% of each draw= $4M aggregate, surfaced on the Sources & Uses page (Budget L20). - Engineering consulting —
Consulting Fees — Engineering Processing Units, Logistics, Development= −$2.461M over the model period (Budget L38).
| Layer | Sheet | Rate | Structure | Cash-flow drag |
|---|---|---|---|---|
| IPS Senior Facility | DOE_Loan |
5.5% | 7-yr term, 84 monthly payments, first draw M9 | Master rate flows from Budget L3; balance/payment cells unpopulated in source — debt-service line not yet wired |
| Equipment Financing Sleeve | Processing_Equipment_Loans |
12% | 24-mo accumulated interest, then 5-yr amortization, due in 7 years | Template populated with zeros — ready for plant-loan principal inputs but not yet driving the cash flow |
Jack labels the senior layer "DOE-style" because IPS structurally mimics DOE rates — the actual lender is IPS, not the U.S. Department of Energy. The 12% equipment-financing sleeve is a separate facility for processing & liquefaction kit and is currently a template, not a live cash-flow driver.
- Broker fee — taken at each draw ("fees-in-place" structure). No line item in Sources/Uses on either workbook. Exact percentage TBD until the IPS term sheet is in hand; this note uses 10–11% one-time as a sponsor-side assumption anchor. Sponsor receives less than face at each draw; interest accrues on the gross notional from the draw date. (facts.yaml fact_070)
- Lender Warrant — 10% equity kicker — not in the cap table or distribution waterfall. Governed separately by the Lender Warrant Agreement v7.3. (facts.yaml fact_022)
- Self-funded interest reserve (IPS "all-finance / no-interest" pool that pre-funds debt-service from facility proceeds) — not modeled as a separate reserve account or as a cash-flow stub.
The only sponsor-side capital match that does appear in Sources/Uses is the $4M Equity Escrow Deposit (5% of each draw). This means a straight read of Jack's 5.5% rate understates the all-in cost of IPS capital by the amortized value of the broker fee + warrant + reserve mechanics. 5.5% is the stated coupon — not what IPS capital actually costs in the bank. See §06 for the rate-posture ladder. (facts.yaml fact_069 locks the 5.5%-stated-coupon-is-not-all-in framing.)
The Residual_Value_after_3_Years tab is a standalone Galileo Capital Advisors valuation memorandum (SO-FIT regulated under Swiss FINMA AMLA art. 2 §3) prepared for the IPS lender. Key figures:
- Operating cash flow — EBITDA $16.5M/month → $198M/year at the 36-month asset state.
- Economic life — 16 years remaining beyond month 36.
- Comparable EBITDA multiples — 7–9× midstream · 9–12× specialty gas · 12–14× strategic industrial gas major.
- DCF range (9–11% discount, finite life) — $1.3B–$1.7B.
Valuation range at IPS maturity: $1.3B–$1.6B core / $1.6B–$2.0B strategic buyer. Against a $240M senior facility this is ~5.4×–8.3× asset-coverage at conservative DCF, more at strategic-buyer pricing. This is the basis on which IPS will underwrite — and the basis any displacement lender will reference.
The interesting framing for any lender conversation isn't "can you beat the 5.5% coupon" — that's the workbook input, not the cost. It's a three-point posture:
| Posture | Rate (all-in, 3-yr) | What it means |
|---|---|---|
| Absorb floor | 10–13% | Current IPS structure as offered (5.5% stated + broker fee + 10% warrant). The model carries this — collateral coverage 5.4×–8.3× from the $1.3B–$1.6B Galileo residual valuation. We can absorb this, but it is the floor of what we'll absorb, not the rate we're underwriting to. |
| Target | ≤9% | New normalized rate target. Any displacement bid, syndication structure, or Program 2 debt sleeve is measured here. Materially better on cost of capital than the absorb floor and removes the warrant dilution; tightens DSCR meaningfully. |
| Goal | ~6% | Strategic preference — what we actually want. Requires a single larger counterparty willing to compress broker + warrant layers, or a syndicated structure that wholesales out the fee stack. Materially improves return-to-Holdco at exit and frees equity capacity for Program 2. |
- 5.5% stated coupon — Jack's master rate (Budget L3); see §04 for why this is not the all-in cost
- +3.3–3.7% broker-fee amortization — 10–11% one-time fee, taken at each draw (fees-in-place), amortized over 3-yr effective life. Exact fee % TBD on the IPS term sheet.
- +1.5–4.0% warrant value amortization — 10% Lender Warrant valued against exit. At a $1.0B exit it amortizes to ~1.5%/yr; at a $2.0B strategic exit to ~4.0%/yr.
- ~0% interest reserve — reserve is funded out of facility proceeds (already inside the stated coupon drag); not additive.
- = ~10.3%–13.2% all-in band (sponsor-side bear/base estimate)
The 10–13% absorb floor is a sponsor-side estimate, not a number on an IPS term sheet. The warrant value is the biggest swing input — at a $1.0B exit it amortizes to ~1.5%/yr; at a $2.0B strategic exit to ~4.0%/yr. Before sharing externally, verify (a) actual broker fee % on the IPS term sheet, (b) IPS exit-trigger formula in the Lender Warrant Agreement v7.3, (c) whether broker fee is structured as fees-in-place (sponsor receives less at each draw) vs. cash-out at closing.
For the new lender conversation: the productive ask is not "beat 5.5%" but "can you deliver at or below 9% all-in — including your own fees and any equity participation — at $800M aggregate?" An offer at or near 6% all-in is the strategic preference. An offer in the 7–9% range is the working target. Anything above ~10% is approximately neutral against the IPS structure on cost of capital, but still potentially attractive on covenant burden, structural simplicity, and equity-dilution avoidance — those have to be priced separately.
proposals/innov8-resources/financials/.