Partner Madlyn Gleich Primoff Discusses Debt Restructuring for Biotech Companies in BioFuels Journal
As appeared in the BioFuels Journal’s “Discussing Debt: Financial Lawyer Recommends Dialogue Between Plants and Lenders”
BioFuels Journal recently explored Aventine Renewable Energy Inc.’s recent debt restructuring agreement with its term loan lenders might mean for other ethanol producers. The provisions of the agreement allow for the conversion of the majority of Aventine’s outstanding term loan debt into newly-issued common equity stock. Additionally, Aventine’s term loan lenders have agreed to supply $30 million in the form of further indebtedness to increase the company’s liquidity, subject to internal credit approvals.
According to Kaye Scholer Bankruptcy & Restructuring Partner Madlyn Gleich Primoff, the Aventine agreement is “an indication that ethanol producers need to be talking to their lenders as margins tighten.” Primoff adds that “there will be more of these discussions going on” with other ethanol producers and their respective lenders.
Primoff warns that financial conditions in the ethanol industry “probably are not going to improve anytime soon because of high corn prices and a decline in plant margins. There are some hard decisions ahead.”
To avoid any possible unforeseen problems Primoff advises that people in charge of ethanol plants “should have these conversations with their lenders so they can make intelligent decisions about their alternatives given current market conditions.”
Primoff told Biofuels Journal that many struggling ethanol plants may be considering at least a temporary shut-down in an attempt to ride out the high corn prices. However, there are pro and cons to such a decision.
“If you idle your plant, how will you pay back your loan? “If you continue to operate and lose money, that could lead to default under the loan agreement. Equity owners, lenders, and plant management may find that it is in their best interests, both individually and collectively, to sit down and talk,” Primoff says, before concluding, “Idling a plant might be a violation of a loan covenant. It can be complicated, and it becomes a little bit like chess and how you move your pieces around the board and what your strategy is.”
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