Ethanol plants look to get back on track

By Bryan Sims | January 03, 2009
An economic downturn in the United States has resonated in virtually every market, including the ethanol industry, where some existing ethanol producers recently filed for bankruptcy protection, while others are making moves to avoid such a fate.

Greater Ohio Ethanol LLC filed for Chapter 11 bankruptcy protection in Ohio Northern Bankruptcy Court in early October. The company halted production at its 54 MMgy corn-based ethanol facility in Lima, Ohio, and accepted bids from potential buyers. In the same month, Gateway Ethanol LLC filed for Chapter 11 bankruptcy protection, citing a lack of funds to operate its 55 MMgy corn-based ethanol plant in Pratt, Kan. Dougherty Funding LLC, which financed the construction of the plant with a $54.3 million loan, foreclosed on the facility.

Filing for Chapter 11 bankruptcy protection allows a company to reorganize its business affairs and assets, and ultimately resume operations if it fulfills its obligations under its reorganization plan, according to Todd Taylor, an officer with Minnesota-based law firm Fredrickson & Byron. "Going into bankruptcy with a plan ahead of time is better versus a
panic without knowing how to make next month's bank payment," he said.

One reorganization option involves reexamining feedstock contracts. Renegotiating feedstock costs with farmers may be viable. "That's what a lot of plants are going to have to look at doing at some point if corn [prices are] the driver taking them down," Taylor said. "If you filed for bankruptcy protection, your duty is to maximize the protection of your assets, preserve whatever capital is left and come up with a plan to come out of it to hopefully resume operations."

Corn prices fluctuated greatly this summer, but corn supply has also been an issue. Glacial Lakes Energy LLC halted production at its 100 MMgy facility in Mina, S.D., and reduced production at its 100 MMgy plant in Watertown, S.D., in October because a late corn harvest forced them to obtain corn from further away and pay more for transportation. Interim Chief Executive Officer Jim Seurer stressed the decision was only temporary until this year's corn crop came in. In the meantime, parent company Glacial Lakes Corn Processors asked its 4,200 shareholders for funds to sustain operations. Its investors approved the request, providing interim funds worth $1 million.

MGP Ingredients Inc. announced it was taking new business initiatives to correct a net loss of $9.9 million in its fourth quarter of fiscal year 2008. The ingredient and distillery products company operates a 78 MMgy ethanol plant in Pekin, Ill., and a 4 MMgy ethanol facility in Atchison, Kan. It was MGP Ingredients' first net loss in more than 10 years. "The main culprit was continuing high prices for our principal raw materials, wheat and corn," said President and Chief Executive Officer Tim Newkirk. "However, a closer review of our results shows that we achieved significant sales growth in food-grade alcohol products, as well as in some key categories in specialty ingredients. To realize our true long-term profit potential, we continue to take additional steps to strengthen the organization. The latest of these includes lowering our operating costs through the restructuring of our business with greater focus on those areas that can generate the highest returns while also further reducing risk across the enterprise."

A lack of financing has affected proposed ethanol plants, as well. Alternative Energy Sources Inc., a publicly owned ethanol company based in Kansas City, canceled plans to pursue ethanol projects in Kankakee and Greenville, Ill., and Ogden, Iowa. Denver-based LiquidMaize LLC delayed development of a proposed 11 MMgy ethanol plant in Lamar, Colo., due to unfavorable market conditions.