Skyrocketing corn prices have injected doubt into a bankrupt Nebraska ethanol plant’s chances for restructuring its finances and producing ethanol any time in the near future.
In late 2007 E3BioFuels LLC’s owner filed for voluntary Chapter 11 after mechanical problems plagued the thinly capitalized startup outside of Mead, Neb. The plant, which was the first “closed-loop” facility powered by methane gas from an adjoining feedlot, only produced ethanol for six months.
Its finances were unable to withstand construction delays, mechanical issues caused by the untested technology, and rising corn prices. Owner Dennis Langley has been in negotiations with his creditors since the Nov. 2007 filing, attempting to restructure loans and obtain finances to fix the mechanical problems associated with a boiler explosion. Under bankruptcy rules, Langley is afforded an exclusive status for 120 days to rectify his financial problems. That status expired April 1. Langley has requested an extension, which is likely to be granted by a bankruptcy judge because typically, when complex finances and multiple creditors are involved, and the proceeding is voluntary, judges give leeway to bankrupt owners who might be in the best position to renegotiate with their lenders. E3’s bankruptcy filing lists $10 million in assets and $73 million in liabilities.
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The delays have caused frustration to potential buyers and creditors who worry that the current ethanol economics don’t support the plant restarting any time soon. “It should come as no surprise to anyone that with the price of corn and a plant sitting without a hedge on the corn from back when it was cheaper, this is not necessarily a good time to be in the ethanol business and buying market corn,” said Philip Madson, president of Katzen International Inc., which designed the ethanol portion of the 25 MMgy refinery. Madson, a member of the creditors committee, said, “$6 corn makes life really tough. The economics are working against you – not just this plant but every plant in operation.” Madson questions whether any financial restructuring plan “could have validity if corn goes to $7 and you’re not locked in. It creates a situation where no one can provide any kind of assurance as to what the financial situation will look like.”
Kansas City attorney Frank Wendt, who represents the unsecured creditors, is waiting on the sidelines while the secured creditors work with Langley. “I hope, on behalf of the unsecured creditors, they can work something out,” he said.
David Hallberg, a former CEO and partial owner of E3, had a bitter parting with Langley before the plant’s demise. Hallberg formed his own company, Prime BioSolutions, an Omaha-based ethanol technology and development company. He designed the original closed loop system, but surrendered the patent to Langley in the break-up. His company would like to bid on E3 but is barred from making any proposals until Langley’s exclusive possession expires. “It’s frustrating because there’s no way for others to get involved yet and we have weather issues with fall and winter coming in,” Hallberg said.
“All of us are worried that the longer the plant sits idle the bigger the chance of deterioration and the harder it will be to restart,” Madson said. “But I don’t believe there’s a single creditor, or the owner, that has any way of producing a financial plan for the next year that has any security behind it because of the corn market. This is one of the toughest times we’ve seen in the industry in the last 25 years. It’s created a situation that none of us are used to.”
The bankruptcy judge is considering Langley’s request for an extension to work his finances out. No hearing has been set on the matter.
