June 4, 2012

 

Georgia's corn ethanol plant receives US$20M in financing

 

 

Aimed at stabilising its bottom line, Georgia's only major producer of corn ethanol has landed US$20 million in new financing.

 

Officials at AloStar Bank of Commerce announced May 25 the approval of a secured revolving credit facility for Southwest Georgia Ethanol LLC, which operates a plant near Camilla producing 100 million gallons of corn ethanol per year.

 

The new source of credit will help the plant respond to volatile corn prices, Southwest Georgia Ethanol spokeswoman Alicia Shirah said.

 

"We live and die by the price of corn," she said. "The good thing about having working capital is we can buy the corn we need."

 

The plant emerged from Chapter 11 restructuring last December with its management team intact and plans to retain all of its 64 employees. Southwest Georgia Ethanol had filed for bankruptcy early last year after receiving written notice from a German commercial bank that it had violated terms of a US$100 million construction loan and a US$15 million working capital loan.

 

The plant, which opened in 2008, has been hurt by the same negative economic trends besetting the corn ethanol industry as a whole. The price of corn, the chief input of corn ethanol plants, has spiked during the last several years, due in part to higher demand spurred by an increase in ethanol production.

 

The industry also was hurt last December when Congress declined to renew a US$0.45 a gallon federal tax credit for ethanol that had been around for 30 years. Congressional critics argued the US$6 billion annual subsidy was no longer needed to stimulate an industry that saw an explosion in production capacity from 6.5 billion gallons in 2007 to 13.9 billion gallons last year, according to the US Department of Energy.

 

Matt Hartwig, spokesman for the Washington, D.C.-based Renewable Fuels Association, said those negative trends have been particularly damaging to "destination model" plants like Southwest Georgia Ethanol, facilities located at the end of supply lines far from the Midwestern Corn Belt.

 

"The Southeast is a big gasoline market," he said. "[But] they have to bring in that corn from somewhere."

 

That's where the new financing from AloStar comes in. AloStar is a one-year-old bank that focuses solely on lending to small and midsized businesses. It started as a pool of US$165 million of private equity dollars and the assets of a failed institution in Birmingham, Ala.

 

Andy McGhee, president of AloStar, said Southwest Georgia Ethanol needed funds to hedge corn prices and help cover the costs of transporting corn from the Midwest to the plant in Camilla. The ethanol producer borrowed a US$20 million revolver from the business lender, which allows it to borrow up to that amount and pay it down over time, like a credit card.

 

"Really what we were trying to accomplish with Southwest Georgia was to provide enough working capital that they could get enough corn onto their site," McGhee said. "They needed the flexibility."

 

Shirah said Southwest Georgia Ethanol is working to increase the amount of corn it buys from local farmers. While the plant has operated with up to 25% of its corn originating locally, the average has been about 20%, she said.

 

Shirah said scoring the financing from AloStar should help the plant increase its local corn supplies by giving local farmers more confidence that they will get paid on time.

 

"Given the struggles [the plant has] had, the farmers in the area wanted to know the company was in a stable financial position," McGhee said.

 

Shirah said the financing will help Southwest Georgia Ethanol continue operating at full capacity, as it has for the last 12 months despite the bankruptcy, while continuing to pay farmers. Meanwhile, the industry overall is about to benefit from a huge increase in demand for ethanol.

 

Hartwig said the US Environmental Protection Agency is expected to sign off soon on a regulation that would let retailers offer a fuel blend with an ethanol content of 15% for motor vehicles built since 2001, up from the current 10%.

 

"We're at the limit of what the nation can blend at E-10," he said.

 

Hartwig said moving to a 15% ethanol blend would grow the market for ethanol from 13.5 million gallons a year to 20 million gallons. He also said the new E-15 rule also would allow the industry to offset the effects of losing the federal tax subsidy.

 

"Three years ago, it probably would have been devastating," he said. "[Today,] the industry is in a very strong position without the tax incentive."