Aventine shareholder urges board to review reorganization alternatives

By Caroline Salls

Pittsburgh, Dec. 10 - Aventine Renewable Energy Holdings, Inc. stockholder Andrew Shirley has asked the company's board of directors to evaluate reorganization alternatives that preserve stockholder value, according to a news release.

Shirley said both ethanol margins and credit markets have recovered dramatically over the past eight months, suggesting that the primary conditions that precipitated the company's bankruptcy filing in April 2009 no longer exist.

In addition, Shirley provided the board with a capital structure analysis, which offers a seemingly feasible reorganization alternative that preserves stockholder value, as well as a valuation analysis, which contends that Aventine's pre-bankruptcy stock has substantial value.

Shirley owns roughly 900,000 shares of Aventine stock, or 2.1% of the shares outstanding.

According to a letter sent to members of the board, Shirley's analysis shows that Aventine's pre-bankruptcy equity has substantial value, potentially more than $10 per share.

Market improvements

Shirley said supply and demand in the ethanol industry has returned to balance after a period of great dislocation in late 2008 and early 2009, and the resulting recovery in ethanol plant EBITDA margins "has been impressive, from breakeven or below to a multi-year high of more than 50 cents per gallon currently."

In addition, Shirley said ethanol margins have continued to expand and may currently exceed 70 cents per gallon for Aventine.

"Aventine currently operates 207 million gallons of ethanol capacity and should generate more than $100 million of plant-level EBITDA based on recent industry margins of more than 50 cents per gallon," Shirley said in his letter.

"At this level of earnings, the company can cover all fixed costs including interest expense on existing debt, interest expense on exit financing debt, taxes, and maintenance capital requirements."

Also, the shareholder said strong margins and enviable multi-year fundamentals suggest that Aventine should have sufficient access to credit market capital.

"With the dramatic recovery in credit markets and industry margins, Aventine now has financing options available that it did not have in the March-April 2009 timeframe," the letter said.

"Aventine should be able to raise a secured credit facility that would allow the company to emerge from bankruptcy while preserving shareholder value and ownership."

Shirley said this facility would be used to pay off the existing debtor-in-possession facility, the existing credit facility, all accrued interest and all other liabilities subject to compromise.

Financing needs

The shareholder's letter said Aventine needs about $100 million to $150 million to exit from bankruptcy and an additional $70 million to $100 million to complete the two ethanol plants under suspended construction.

Upon completion of the new plants, Shirley said Aventine would have total net debt of $500 million, comprised of a $250 million secured exit facility, $300 million of existing 10% notes and about $50 million of cash and equivalents.

DIP loan replacement

Additionally, Shirley said the board should immediately seek to renegotiate or replace the existing DIP credit facility to provide better flexibility and terms.

"While the existing DIP facility likely provided the best terms available on the filing date, the $30 million commitment is arguably too low, the April 7, 2010 maturity is arguably too short, and the 16.5% interest rate is arguably too high," Shirley said in his letter.

"Simply put, with the dramatic recovery in both industry margins and the credit markets, substantially better terms are likely now available."

Aventine, a Pekin, Ill.-based producer and marketer of fuel-grade ethanol, filed for bankruptcy on April 7, 2009 in the U.S. Bankruptcy Court for the District of Delaware. Its Chapter 11 case number is 09-11214.

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