Financial Restructuring Alternatives for Bioenergy Companies

By James Lodoen and George Singer | August 04, 2008
The commodity prices and other economic considerations challenging virtually all bioenergy companies are triggering the following questions:

How does a bioenergy company maximize cash flow and make debt payments in the current environment?
Be proactive instead of reactive. There are almost always expenses available to cut, and most distressed companies wait too long to cut them. This could include reducing employees and contracting with third parties that provide management or operational services.

Keep the project lender informed with good and bad news. The current lender is the best option for additional financing, or for modification of loan covenants and repayment schedules. Open and proactive communication is critical.

Explore raising capital from current investors or from domestic or international private equity funds as a way to recapitalize the business. Reduced ownership in a viable entity is almost always preferable to increased ownership in a failed venture.

Consider leasing the facility to a viable entity or entering into a sale, merger or joint venture.

Is Chapter 11 bankruptcy a solution?
Sometimes. It creates a short-term reprieve to prevent creditors from foreclosing, may eliminate lender and creditor payments in the short run, and may allow for use of cash collateral if a lender refuses to allow continued use of receipts for operations. However, if the company cannot live off its current cash, Chapter 11 does not generate new sources of revenue absent agreement of the currentor newlender voluntarily advancing new financing.

Chapter 11 is expensive. Lawyers, accountants and other professionals for the company, creditors' committee and sometimes the secured creditor all need to be paid. It is also difficult to successfully reorganize or liquidate in a Chapter 11 proceeding without the cooperationto at least some degreefrom the major lender(s). It is a last resort, but
sometimes a necessary one.

Whom do I need to call for help?
Turnaround/restructuring consultants generally work exclusively with financially distressed companies and quickly analyze and implement steps to resuscitate, stabilize and either restructure, liquidate or sell a financially-stressed company. They are adept at the art of managing cash-flow. They typically are certified public accountants, former lenders, chief executive officers, chief financial officers and even lawyers. Their skills translate throughout any industry.

Lawyers with experience in corporate reorganizations and bankruptcy law are a critical piece of the solution. Negotiations with creditors and lenders are often measured against what the various constituents can accomplish in a bankruptcy proceeding. They work hand-in-hand with current management and turnaround consultants.

Investment bankers may be required, but are often used to find new financing or capital, or to find potential merger partners or a buyer.

What are the three major mistakes financially troubled bioenergy companies make?
1) Not identifying or responding to the first signs of financial distress,
2) waiting too long
to retain outside professionals to address financial problems, and
3) not retaining the best professional help available.

James Lodoen and George Singer have extensive restructuring and agribusiness experience, and are partners in the corporate reorganization and bankruptcy group at Minneapolis-based Lindquist & Vennum PLLP. Reach Lodoen at jlodoen@lindquist.com or (612) 371-3234. Reach Singer at gsinger@lindquist.com or (612) 371-2493.