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Market Reality Bites Biofuel Companies

Bill DiBenedetto | Friday April 3rd, 2009 | 1 Comment


The sour economy, low oil prices, the collapse of the commodity market and flight from food-based biofuel sourcing merged into in a deadly mix.
Not that long ago ethanol and related first generation biofuels were the next big thing in alternative energy. Now this segment is in danger of becoming the next big bust.
In recent days Nova Biosource Fuels, a Houston-based refiner and marketer of ASTM quality biodiesel, filed to restructure under Chapter 11 of the U.S. Bankruptcy Code. And BioFuel Energy, a Denver ethanol producer, is on the verge of a bankruptcy filing of its own.


BioFuel Energy’s saga is especially harsh and somewhat surprising. It began commercial operations last June with strong contractual ties to Cargill, the agribusiness giant. Despite that seeming advantage it lost more than $84 million last year on revenue of about $180 million. It piled on another $12.3 million in losses in the first quarter.
Add to that the risks facing every alternative energy startup and BioFuel has nearly reached its limit.
Recently it decided it would no longer pursue construction of three plant sites it had under evaluation, which would have brought its total plants to five. BioFuel had to write-off development costs associated with that exercise.
Further it’s facing the very strong possibility of defaulting on a senior credit facility.
It has continued to post operating losses this year “resulting from poor operating margins due to the relative prices of corn and ethanol,” the company says. It’s liquidity position continues to erode and it doesn’t anticipate a turnaround this year. If it can’t meet or refinance debt service payments of more than $3 million that start coming due in June bankruptcy is almost certain.
Here’s what it told the Securities and Exchange Commission about its situation:
“If we are unable to reach an agreement with our lenders to restructure our debt or are unable to raise additional capital, or are otherwise unable to generate sufficient liquidity from our operations to satisfy our debt obligations, it may have a material adverse effect on our liquidity and may result in our inability to continue as a going concern. This in turn could potentially force us to seek relief from creditors through a filing under the U.S. Bankruptcy Code.”
That’s standard corporate-speak for “We’re in a heap of trouble.”
Meanwhile Nova Biosource cited the drop in energy prices as the major catalyst for its Chapter 11 decision. It says it has $50 million in liabilities and lost $11 million in the first quarter. Even the best plans and connections can go haywire in this volatile market. The end is here for Nova Biosource and near for BioFuel Energy. Is the field ripening for biomass and second-generation biofuel?


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