Aventine Renewable Energy Holdings (fka AVRW)

[biofuel911]

Post pulled from Yahoo board today with some interesting questions at the end:

Re: OBJECTIONS TO FAULTY POR FILED 6-Jan-10 01:07 pm

Items 10 and 11 quoted from Mr. Shirley’s Objection to the proposed Disclosure Statement (Docket 644):

"10. ADDITIONAL DISCLOSURE WITH RESPECT TO VALUATION. Whether one uses the Debtors’ own cash flows or simply looks to the market for the Debtors’ publicly-traded bonds or equity, there is a strong argument to be made for the Debtors’ solvency. Yet the valuation analysis performed by Houlihan Lokey Howard & Zukin Capital, Inc. (“Houlihan”) appears to conclude that the Debtors are insolvent. That analysis provides the creditors will receive anything from between lass than one cent to approximately 50 cents on the dollar under the Plan, even though the Debtors’ unsecured bonds were recently trading at roughly 95 cents on the dollar. To enable holders of Equity interests to understand this discrepancy, more information regarding the process undertaken by Houlihan is required.

11. Shirley submits that at a minimum, the Disclosure Statement should set forth some basic information regarding the analysis performed by Houlihan. For example, although the Disclosure Statement provides that Houlihan performed three valuation methodologies (the comparable company analysis, discounted cash flow analysis, and precedent transaction analysis), it fails to set forth the percentage weight ascribed to each methodology. Moreover, the Disclosure Statement fails to reference which comparable companies and precedent transactions were utilized in the analysis and omits anty detailed disclosure of any discounts applied by Houlihan (for example, estimated completion costs of the plants, risk adjustments, and discounts to account for purported control premiums). In particular, with respect to the discounted cash flow analysis, the Disclosure Statement does not include the terminal value used, the multiple for that terminal value, or even the applicable discount rate used to discount the cash flows. Without this basic information, it is impossible for holders of Equity Interests to understand the valuation on which their recovery is based."

Following are some things to think about:

According to the November MOR, so far Houlihan Lokey has billed Aventine over $620,000 in fees and expenses as their "investment advisor". Yet H&L can't even provide the most basic information to back up their faulty "valuation analysis"?

H&L's "work" contained in the DS is an obvious indication they are more concerned about the interests of the unsecured bondholders than the interests of the Debtor (Aventine) and the Debtors estate.

You have to ask yourself: "Why would a supposed "world-class" investment advisor like Houlihan Lokey come up with such an erroneous valuation and omit so much basic information that they know full well should be provided in a Disclosure Statement?

Here is a link to a "Financial Restructuring Workshop" document from a 2004 World Bank seminar held in D.C. written by Alan D. Fragen (the Managing Director, Houlihan Lokey Howard & Zukin):

http://info.worldbank.org/etools/docs/li...

Houlihan's managing director, Mr. Fragen, gives his thanks to his colleague James Zukin for his perspectives in the footnote at the bottom of the first page. I have been studying the teaching contained in this document for many months now, and it is indeed very thorough, very understandable, and quite excellent in its content.

My big question is: Why is the valuation Houlihan developed for Aventine an absolute failure (with no documentation or details to substantiate it) compared to what Mr. Fragen taught to other investment professionals in 2004?

Something is truly very wrong with Houlihan's handling of their "advising" responsibility to Aventine and their estate during this BK so far.