Corn price, delays, operational issues contribute to bankruptcy

By Holly Jessen | February 02, 2011

First United Ethanol LLC announced Feb. 2 that its wholly-owned subsidiary, Southwest Georgia Ethanol LLC, has filed for Chapter 11 bankruptcy protection. “We are using this Chapter 11 filing as a tool to recognize and protect the value of our business for the long term,” said Murray Campbell, CEO of FUEL, which will continue to manage the plant and doesn’t plan to file for Chapter 11.

The plant, a 100 MMgy ethanol plant in Camilla, Ga., will continue to operate as a debtor in possession while working out a reorganization plan to restructure its debts and pay creditors. Currently, it doesn’t expect to cut back on purchases of inputs, including corn.

According to documents filed in U.S. Bankruptcy Court in the Middle District of Georgia, Albany Division, consolidated financial statements show revenue of $168 million for the fiscal year ending Sept. 30. As of Dec. 31, the company had assets of about $164 million and liabilities of $134 million.

The Chapter 11 filing came about due to liquidity constraints that resulted from operational problems that have now been largely resolved, the company said. Since becoming operational in October 2008 the plant had to stop production numerous times, which the debtor “attributes to construction and design problems,” according to bankruptcy filing documents. At one point, an explosion halted production for more than a week and output was reduced in 2010 because heat was not dissipating sufficiently during the summer months.

The company also pointed to financial difficulties caused by increased corn prices and delivery delays. Corn is purchased from local corn producers when it is competitively priced but the majority is delivered via rail car from the Midwest. In 2010 there were many instances of rail car delays that prompted the company to purchase corn from local vendors at a substantial premium so it could keep operating. “On several occasions the debtor was forced to stop production either because of liquidity constraints which limited its ability to purchase corn or because of corn delivery issues,” court documents said.

A sixth amendment to the loan agreement and fourth amendment to the accounts agreement were hammered out this summer. However, the company didn’t meet working capital deficit thresholds set in those agreements and has been assessed penalty fees of about $1.3 million per quarter, which has been charged to interest. The company also owes other companies, including about $3 million to Fagen Inc., the design-build company.  

The ethanol plant has roots that go back to 2005, when the Mitchell County Research Group LLC formed and funded a feasibility study. Several months later a board was formed and the name was changed to First United Ethanol LLC. Construction began in the spring of 2007 with costs projected to be $185 million to build the plant. An equity offering in 2007 bought in $74 million from more than 800 investors.