Georgia ethanol plant looks to reorganize, give lenders equity

Southwest Georgia Ethanol LLC has filed a restructuring plan in U.S. Bankruptcy Court and a Sept. 27 deadline has been set for filing written objection to the plan.

The 100 MMgy ethanol plant in Camilla, Ga., has been operating as a debtor-in-possession since filing for Chapter 11 bankruptcy protection in February.

The ethanol plant is a wholly-owned subsidiary of First United Ethanol LLC, which did not file for Chapter 11. FUEL holds Class A member interest in and owns all of the outstanding equity in the debtor, according to court documents. CT Corporation Staffing holds Class B member interest but no ownership interest.

An estimated $107 million is owed to the pre-petition senior secured lenders. If the restructuring plan is approved, those lenders will receive new Class B equity and new preferred equity, adding up to a 97 percent return on their investment. FUEL would receive new Class A equity and it would be “very unlikely” that the company would “recognize any value from its equity interest in the reorganized debtor,” court documents said.

Other creditors will receive far less under this plan. The bondholders, owed an estimated $8.7 million, and Fagen Inc., which is owed about $4.2 million, would each receive about a 3 percent return. The company entered into a design-build contract with Fagen in 2006, for a total price of $125 million, subject to further adjustment depending on timing, increase in the cost of materials and other factors.

If the plan is not approved, the Chapter 11 case may be converted to a Chapter 7 bankruptcy, or liquidation, the company said in court documents. It further warned that distributions to creditors would be delayed significantly and it would likely mean smaller recovery to creditors. “The plan was developed over several months and is the product of extensive, arm’s-length negotiations among the debtor, the agents, and holders of a majority in amount of the senior secured lender claims,” the company said. “The debtor and the agents believe that approval of the plan presents the best chance for the debtor’s successful emergence from Chapter 11.”

If the plan is approved, all members of the board of managers of the debtor will resign as of the plan’s effective date. The new Class A units, given to FUEL, would collectively have 75 percent of all voting rights and the new Class B units, which would belong to the senior secured lenders, 25 percent of all voting rights. In addition, all individuals serving as executive officers and managers plus some or all of the senior management employees will retain their jobs.

Volatility in commodity prices for corn, natural gas and ethanol contributed to the company’s decision to apply for Chapter 11 Bankruptcy, according to court documents. In 2010 the ethanol plant hired a third party to help it identify areas for improving operational effectiveness. The company also worked through Morgan Keegan, its financial advisor and investment banker, but after contacting about 30 parties was unsuccessful in identifying a potential buyer. As of Aug. 1, Morgan Keegan put the enterprise value of the reorganized debtor at $103 to $108 million.

source: ethanolproducer