Minn. plant has 60 days to raise $4.5 million in working capital

By Holly Jessen | March 10, 2011

Bob Ferguson, CEO of Heron Lake BioEnergy, a 50 MMgy ethanol plant in Heron Lake, Minn., is confident the company will be able to raise $4.5 million in working capital. “We’ll either raise it from the internal membership or we’ll raise the money from another source,” he told EPM.

The company has 60 days to raise the money as part of a deal with its lender, AgStar Financial Services PAC, which it owes about $53.6 million. In exchange for extending the maturity date of a revolving line of credit loan, Heron Lake agreed to pay 50 percent of deferred interest and the other half was forgiven, Ferguson said. As of Oct. 31 Heron Lake had $3.5 million outstanding on its line of credit with AgStar.

This isn’t Heron Lake’s first 60-day extension—the company missed a deadline to raise the money by March 1 after an extension was granted the end of December. The company expected at that time to ask for another extension, it said in SEC filings.

Financial difficulties caused the company to violate certain covenants in its master loan agreement with AgStar. The violations occurred at the end of every quarter except one from Jan. 31, 2009, to Oct. 31 according to SEC filings. The end of the year AgStar and Heron Lake agreed on an amended agreement in which AgStar agreed not to declare the ethanol plant in default on the loan.

The company has been working to increase income and cash flow from its operations. It also began an offering of its units that began in August 2010. If that effort is not successful, it says in U.S. Securities and Exchange Commission documents, the company will either go into debt further; make another offering of its equity securities or both. “If we are unable to obtain sufficient capital, we may further curtail our capital expenditures, further reduce our expenses, or suspend or discontinue our operations or sell our assets,” the document said.

For the fiscal year that ended Oct. 31 Heron Lake had net income of $1.7 million, including a one-time settlement income of about $2.6 million. The previous fiscal year the company had a net loss of about $11.3 million, driven by low or negative margins. 

Heron Lake, originally organized in 2001 under the name Generation II LLC, began operating in September 2007. The company’s subsidiary, Lakefield Farmers Elevator LLC, operates Minnesota grain facilities in Lakefield and Wilder. In 2009 the company sold 46.5 million gallons of ethanol, followed by 53.4 million gallons in 2010. The coal-fired plant is staffed by 47 full-time employees.