Ethanol firm ups its stake in plants
12/21/2012 12:00 AM
Sacramento's ethanol company is slowly recapturing the production plants it lost to bankruptcy, part of a comeback strategy in what is still a struggling industry.
Pacific Ethanol Inc. said this week it's paying its creditors $1.3 million to increase its ownership stake in four production plants across the West. When the deal is completed, Pacific Ethanol will control an 80 percent stake in the four plants, which creditors took over in 2010.
The company also announced a series of complicated debt-refinancing moves. The moves will push back $32 million worth of debt maturities by two to three years, leaving Pacific Ethanol with just $6.7 million in debt coming due on its plants next year.
The moves will help get Pacific Ethanol past the current "choppy environment," with the expectation that market conditions could improve in 2014, said Neil Koehler, president and chief executive.
"It will get better," he said in an interview Thursday. "We're going to be well positioned."
Pacific Ethanol rushed to build plants during the ethanol boom several years ago but defaulted on $250 million in debt when prices for the fuel additive collapsed. It placed its four plants in Chapter 11 bankruptcy protection in 2009.
The bankruptcy case ended with creditors owning the plants and the Sacramento company holding just a contract to manage them. Since then, Pacific Ethanol has been gradually buying back the equity in the four plants.
The latest buyback gave the company an additional 13 percent ownership, to a total of 80 percent.
Even though the industry remains troubled, the $1.3 million price for the equity was "an incredibly attractive valuation," Koehler said.
His company faces considerable head winds. One of the four plants, in Madera, has been idle since 2009. The company lost $14 million in the first three months of this year.
Nasdaq has given the company until June to get its stock back over $1, or face delisting. The stock closed Thursday at 34 cents, up a penny.
Pacific Ethanol's woes are tied to record prices for corn, its main ingredient. At $7 a bushel, it's almost double what it was three years ago, and it's made ethanol production unprofitable, said Joel Karlin, a commodity market analyst at Western Milling in Tulare County.
Karlin said consumption of ethanol has stalled out, due to the so-called "blend wall" – the fact that most gas is blended with no more than 10 percent ethanol. The U.S. government has authorized 15 percent blends, but they've been slow to catch on in the market, he said.
Koehler, however, said he thinks demand will improve in coming years because of government restrictions on carbon emissions.
"We still believe in the fundamentals of the industry," the CEO said.
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