Otter Tail Ag Enterprises LLC filed for Chapter 11 bankruptcy protection in U.S. Federal Court Oct. 30. The bankruptcy was prearranged with Otter Tail’s lenders and will allow it to avoid liquidation of the facility.
Otter Tail needs to raise $10 million to $12 million as part of the agreement. According to Otter Tail CEO Anthony Hicks, “The bankruptcy is prearranged and Otter Tail has the support of its senior lender. The restructuring process requires us to raise capital from members. We also have to renegotiate terms with our lenders on the subordinated side.”
In 2008, ethanol producers across the country were hard hit by high-cost corn, declining gas prices and the economic downturn that affected nearly all sectors of the economy. As a result, in 2009, Otter Tail experienced large losses and was unable to make payments to creditors on top of its long-term debt.
Otter Tail did make an effort to avoid bankruptcy, but was unsuccessful. “We have tried to negotiate our debt to a more manageable amount outside of bankruptcy, but have been unable to get that accomplished,” Hicks said. “We presently hold $81 million of long-term debt on a relatively short schedule. That is purely from construction of the plant.”
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This year has been different for Otter Tail. The company has seen lower corn prices over 2009 and higher gasoline prices, creating a better environment for ethanol to be profitable, however, the outstanding debt carried by the facility proved too much to recover from.
Hicks sees the bankruptcy filing as the best path forward. “This is a prearranged situation, not a free-fall. It does afford our membership the opportunity to reinvest in the company and remain in control. The other alternatives are less desirable. This will allow us to make the most of a bad situation.”
