Hawkeye Renewables files bankruptcy

By Erin Voegele | December 09, 2009
Report posted Dec. 22, 2009, at 9:00 a.m. CST

Hawkeye Renewables LLC filed for Chapter 11 bankruptcy on Dec. 21. The company, which is a subsidiary of Hawkeye Energy Holdings LLC, owns and operates two Iowa-based ethanol plants; a 100 MMgy facility in Iowa Falls and a 115 MMgy facility in Fairbank.

According to a statement released by Hawkeye Energy, Hawkeye Renewables' proposed plan of reorganization has been overwhelmingly accepted by its first lien lenders. In addition, Hawkeye Energy said the "pre-packaged" restructuring plan that will be implemented through the bankruptcy filing is expected to increase the financial strength and capitalization of Hawkeye Renewables by converting debt into equity.

Operations are continuing normally at both ethanol plants. According to information provided by Hawkeye Energy, Hawkeye Renewables has filed customary first day motions with the bankruptcy court seeking authority to honor obligations to the unit's employees and customers as well as critical trade creditors and suppliers in the ordinary course of business, which if granted will leave such parties unaffected by the restructuring.

In addition, both plants are buying corn as usual, and Hawkeye Renewables said it fully expects that all corn suppliers will be paid in full under normal terms for current and future contracts. Both plants are also expected to continue to meet all sales commitments to their ethanol and distillers grains customers.

Hawkeye Energy's other subsidiaries, Hawkeye Growth and Hawkeye Gold, are not a part of the reorganization and are unaffected by the filing. Hawkeye Growth owns and operates ethanol plants in Menlo, Iowa, and Shell Rock, Iowa. Hawkeye Gold is responsible for marketing the ethanol and distillers grains produced at all four plants.

Although Hawkeye Growth and Hawkeye Renewables are subsidiaries of the same company and own and operate similar ethanol plants, Hawkeye Renewables spokesman Michael Freitag said that Hawkeye Renewables has more than twice the debt as Hawkeye Growth. This is one reason why Hawkeye Renewables has filed for Chapter 11 bankruptcy, while its sister company is unaffected.

The implementation of the plan, which has been accepted by first lien lenders but not by second lien lenders, is subject to court approval. Freitag said it is difficult to estimate how long this type of case will last, but said Hawkeye Renewables hopes to emerge from bankruptcy within 60 to 90 days.

"The U.S. biofuels industry is going through a period of historic change and we are taking the necessary steps to position our business units to succeed in a dynamic and sometimes volatile business environment," said Hawkeye Energy CEO Bruce Rastetter. "The ethanol industry was severely affected in 2008 and 2009 by unprecedented volatility in commodity prices and margins. While the market for ethanol has stabilized and financial performance has improved in recent months, it nevertheless became clear that a restructuring of the Renewables unit's balance sheet would be necessary for the company to compete effectively in the future."