Tenaska backs out of deal with Texas plant after court ruling

By Holly Jessen | May 26, 2011

Tenaska BioFuels LLC has withdrawn its proposed agreement that would have allowed Levelland Hockley County Ethanol LLC to restart production. It happened after a U.S. Bankruptcy court ruled that the terms of the agreement could not stay confidential. “At this point we have no Tenaska agreement,” said I. Richard Levy, attorney for the 40 MMgy ethanol plant. “They have indicated they are interested in staying involved in the company but they are going to wait and see what the creditors’ committee wants to do first.”

The terms of the Tenaska agreement were made available to all the parties of interest, Levy said. However, the senior secured bank group, represented by GE Energy Financial Services, and other creditors, opposed both the agreement with Tenaska and the request to keep the terms of the agreement confidential. The court’s decision to deny the ethanol plants motion to keep the terms of the agreement sealed came ahead of a now canceled June 1 hearing to evaluate the agreement itself.

The Levelland, Texas, ethanol plant filed for Chapter 11 bankruptcy protection on April 27, thanks to high feedstock prices and tight margins. The plant has been shut down since December and the company wants to restart it quickly to take advantage of the “prime profitable months,” beginning in September, the start of the milo and corn harvest. An appraisal valued the plant assets at more than $51.5 million, if the plant is fully operating but only $40 million if it is idled. “We’re still hopeful that we will have very quickly some other arrangement to put the plant back into operation,” Levy told EPM. “We believe that the value of the plant really depends on getting up and running.”

The Tenaska agreement wasn’t a true tolling agreement but rather an asset management post-petition financing agreement, Levy said. LHCE believes that agreement is in the best interest of the ethanol plant but, since it has been withdrawn, will move forward with other options to restart the plant. “We’re considering offers from other parties as to possible post-petition financing, for one,” he said, adding that the company will also remain in talks with Tenaska and the creditor’s committee’s financial advisor.