On May 17, 2009 (the “Petition Date”), Pacific Ethanol filed for bankruptcy in the United States Bankruptcy Court of the District of Delaware. According to Pacific Ethanol’s Declaration in Support of First Day Pleadings (the “Declaration”), the company owns and operates four ethanol plants with combined production capacity of 200 million gallons of ethanol per year. Two of the company’s plants are located in California (Stockton and Madera), one in Burley, Idaho and one in Boardman, Oregon. As stated in the Declaration, only the Oregon facility is operating as of the Petition Date.
Each of the company’s four facilities operate as a separate LLC. All four, however, are parties to a marketing agreement with Kinergy Marketing LLC, granting Kinergy the exclusive right to buy and sell each plant’s ethanol. Each of the four Pacific Ethanol facilities buy their corn used in ethanol production from Pacific Ag. Products, LLC.
Pacific Ethanol’s Financials
Going into bankruptcy, Pacific Ethanol’s secured debt totals $247 million. According to its bankruptcy petition, the company’s largest unsecured trade creditors are as follow:
- Delta T Corporation … $2 million
- Iderdrola Renewables … $256,840
- Novozymes North America … $172,699
- Simplex Grinnell … $152,237
- Northstar Chemical … $83,857
- Collins Electric … $63,383
In the weeks before bankruptcy, Pacific Ethanol considered obtaining debtor financing from various parties including Lyles United, Bank of America, Versa Capital, PNC and Blackrock Kelso. However, in order to obtain debtor in possession financing, the postpetition lender would likely require a lien that primed WestLB’s prepetition credit facility. This proved problematic for Pacific Ethanol as WestLB was unwilling to consent to its lien on the company’s assets being primed by a postpetition DIP lender. Unwilling to fight with WestLB in Bankruptcy Court regarding the parties’ rights under section 364(d) of the Bankruptcy Code (governing the use of debtor financing), Pacific Ethanol decided to enter into a debtor in possession credit facility with WestLB wherein WestLB would prime its own prepetition lien.
Pacific Ethanol, like other ethanol producers that filed for bankruptcy before it, was adversely affected by volatility in corn, natural gas and ethanol prices. Corn prices do not rise and fall in the same manner as ethanol prices. The price of ethanol is tied, to a great degree, to fuel prices. The price of corn (a major ingredient in ethanol production), is affected by factors such as crop yields and weather patterns. Pacific Ethanol claims its bankruptcy was the result of fluctuations in ethanol and corn prices, combined with high debt and a lack of cash.
This bankruptcy proceeding is before the Honorable Kevin Gross.