Print this story |
E-mail story |
iPod friendly | Bookmark this
What is this?
Otter Tail Ag files bankruptcy, inks deal with lenders
Published 10:00 a.m., November 1, 2009
By Jeffrey Hage
Daily Journal
Otter Tail Ag Enterprises, operators of a Fergus Falls ethanol manufacturing facility, filed Chapter 11 bankruptcy Friday.
The move came after Otter Tail Ag Enterprises reached an agreement with its senior lenders that CEO Anthony Hicks says will allow the company to emerge as a stronger company that can compete in today’s ethanol markets.
"We believe that by filing for the protection afforded us under Chapter 11 of the U.S. Bankruptcy Code, we will be able to move forward with our senior lenders and members to restructure our debt and raise the necessary capital to move forward in today's economy," Hicks said.
The bankruptcy filing was done with the approval of the company’s senior lender, AgStar Financial — which represents 10 banks — and the Midwest Minnesota Community Development Corp., which provided $20 million of New Markets Tax Credits to finance construction of the $126 million facility.
However, subordinate lender Oppenheimer Funds, the holder of $20 million in Otter Tail Ag bonds, did not reach a financial reorganization agreement with the company. Otter Tail County, which holds another $6 million in bonds, has been supportive of Otter Tail Ag’s reorganization efforts, Hicks said.
"Negotiating a pre-filing arrangement with our senior creditors allows us the best opportunity to finalize our restructuring plan, which we will seek to have approved by the courts," Hicks said.
Otter Tail Ag will file a reorganization plan with the court by Nov. 30, 2009 and, if approved, will have until Feb. 28, 2010 to execute the plan, Hicks said.
Otter Tail Ag Enterprises was hit late last year by what some in the ethanol industry have called "the imperfect storm,” Hicks said.
The rising price of corn, the falling price of gasoline and the national economic crisis created a very difficult situation for many ethanol producers across the country, especially the newer plants that were built in the last few years. The Otter Tail Ag facility, which opened in 2008, was one of those.
According to industry information, by February 2009, about nine percent of all the ethanol plants in the U.S. had filed for bankruptcy and some analysts believed the numbers could reach as high as 20 percent.
However few have reportedly done this with a pre-negotiated arrangement with their lenders as Otter Tail Ag now has, Hicks said.
The parent company of an ethanol plant about 60 miles from Fergus Falls in Hankinson, N.D. fell on hard times after a pre-negotiated agreement could not be reached.
VeraSun, one of the nation's largest ethanol producers with 16 plants, filed Chapter 11 last fall without terms from its senior lenders. VeraSun's failure to achieve a lender agreement led to a forced sale of the company's assets, according to an Otter Tail Ag spokesman.
The majority of VeraSun's ethanol plants were purchased by Valero, one of the U.S.' largest petroleum refiners. The remaining plants were purchased by other groups and resold to a variety of buyers. VeraSun's ethanol production facility in Hankinson sat idle for a year and was sold to Murphy Oil Corporation, based in El Dorado, Ark. The Hankinson facility resumed operations in mid-October.
"We have been working to avoid the kind of fire sale liquidation of plants that has been happening around the country, where big outside companies come in and buy the assets for pennies on the dollar" Hicks said. "Our goal has been to find a way for the plant to continue operating, to keep an opportunity for local ownership. This is in the best long-term interest of our members and the community."
Under protection of bankruptcy, the board and management will work with the lenders to negotiate new contracts and debt agreements and raise approximately $12 million in new equity.
The existing 970 Otter Tail Ag Enterprises members will have an opportunity to reinvest in the reorganized cooperative.
WOULD YOU LIKE TO SHARE THIS STORY?
