Pacific Ethanol files amended plan; lenders agree to interest grant

By Caroline Salls

Pittsburgh, April 19 - Pacific Ethanol, Inc. and wholly owned subsidiary Pacific Ethanol Holding Co. LLC have filed an amended plan of reorganization and disclosure statement with the U.S. Bankruptcy Court for the District of Delaware in continued cooperation with its lenders, according to a company news release.

As previously reported, under the original plan filed on March 26, the ownership of the company's plant subsidiaries will be transferred to a newly formed holding company.

The company said the amended plan allows the lenders to grant it an option to purchase up to 25% of the total ownership interests in new Pacific Ethanol for up to $30 million in cash. The option would be exercisable until 90 days following confirmation of the amended plan.

Pacific Ethanol said it still expects to emerge from bankruptcy near the end of the second quarter.

Also under the amended plan, the new Pacific Ethanol term debt will be reduced by $67 million to $50 million.

In addition to the term debt, the amended plan continues to provide working capital of up to $15 million, which may be increased up to $35 million as provided in the original plan.

"Under this plan the plant subsidiaries would emerge with an even lower level of debt while providing sufficient liquidity to support existing operations and resume production at the Madera and Stockton, California facilities," Pacific Ethanol president and chief executive officer Neil Koehler said in the release.

"The opportunity to continue as an owner of the production facilities supports our strategy of being the leading producer and marketer of low carbon renewable fuels in the Western United States as the market for our products and services continues to expand."

Exit financing

According to an 8-K filed with the Securities and Exchange Commission, $293.5 million in pre-bankruptcy and post-bankruptcy secured debt will be restructured under an exit facility to be provided by WestLB, AG New York branch and other lenders.

The exit facility will include $15 million in revolving loans to fund working capital requirements so long as two of the four ethanol plants owned by the debtors are not in operation.

If at any time more than two ethanol plants are in cold shutdown, the total principal amount of the exit revolvers may be increased by an amount approved by WestLB as agent and the required lenders, provided that in no event could the total principal amount exceed $35 million.

The exit facility will also include $25 million in term A-1 loans, which will be used to repay in full the revolving portion of the company's post-bankruptcy credit agreement, as well as $25 million in term A-2 term loans, which will be issued in cancellation of an equal amount of pre-bankruptcy loans that were deemed converted to debtor-in-possession roll-up loans.

According to the 8-K, new Pacific Ethanol will be solely owned by the pre-bankruptcy lenders and the exit facility lenders.

The pre-bankruptcy lenders will contribute a portion of the $236 million of outstanding pre-bankruptcy debt to the new company.

New Pacific Ethanol will forgive the contributed debt in exchange for 100% of the new equity interests.

New Pacific Ethanol Holdco membership interests will be allocated between the lender groups, with 73% to go to pre-bankruptcy lenders and 23% to the exit facility lenders.

Call option

Additionally, each pre-bankruptcy lender will have the opportunity to elect to grant the company the right to acquire all or a portion of the new holding company membership interests, up to a maximum of 25% at a call option price of $30 million, or $1.2 million for each 1% of the new membership interests.

The call options will be exercisable within 90 days after the plan effective date.

Creditor treatment

Treatment of creditors will include:

• Holders of priority claims and secured tax claims will be paid in full in cash;

• Holders of other secured claims will either have their claims reinstated, be paid in full in cash or receive the collateral securing the claim;

• Holders of pre-bankruptcy credit facility claims will receive a share of new PE Holdco, which will become the owner of the reorganized company.

Under the previous plan, these creditors were also slated to receive a share of exit facility term B loans;

• Holders of roll-up claims will receive a share of exit facility A-2 term loans;

• Holders of general unsecured claims will receive a share of a general unsecured claim amount;

• Holders of subordinated claims and Pacific Ethanol equity interests will receive no distribution; and

• Subsidiary equity interests will remain unimpaired.

The company said its ownership structure, particularly in relation to ownership of the company by its common and preferred stockholders, will not change under the terms of the amended plan.

Upon confirmation of the amended plan, Pacific Ethanol said its balance sheet will reflect the disposition of the plant subsidiaries' assets and cancellation of $293.5 million of their related secured debt.

Facility operation

The company will continue to staff, manage and operate the four ethanol production facilities held by the plant subsidiaries for a negotiated fee and profit-sharing arrangement. In addition, Pacific Ethanol, through its other subsidiaries not in bankruptcy, will continue marketing ethanol for third parties as well as the ethanol and related feed products produced by the four facilities.

Pacific Ethanol is a Sacramento-based marketer and producer of ethanol. It filed for Chapter 11 bankruptcy on May 18, 2009. Its Chapter 11 case number is 09-11713.

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