Pacific Ethanol files for Chap. 11

May 19, 2009 (The Record - McClatchy-Tribune Information Services via COMTEX) -- PEIX | Quote | Chart | News | PowerRating -- Pacific Ethanol Inc.'s $100 million ethanol plant in Stockton and the company's three other subsidiary production facilities have filed for U.S. Bankruptcy Court protection to reorganize their financing.

Officials of Sacramento-based Pacific Ethanol said Monday the parent company, as well as its two marketing subsidiaries, continue to operate outside of Bankruptcy Court strictures. Under the unusual bankruptcy filing, Pacific Ethanol will continue to direct plant operations under a management contract and market any fuel and animal feed produced.

The company's debt is tied to its primary capital assets -- the four ethanol plants.

Adverse market conditions -- high corn prices and low fuel prices -- led to the bankruptcy filing, one in a string to hit the U.S. ethanol industry, said Rick Kment, a biofuels analyst with DTN in Omaha.

"We're posting a net loss of about 30 cents a gallon" on ethanol production, when including all capital and financing costs, he said.

"Pacific Ethanol has had struggles over the last year," Kment said. "Many expected this quite awhile ago."

In an effort to limit its losses, the company suspended production in February in Stockton -- where the plant opened to great fanfare last fall -- and at a similar plant in Burley, Idaho. Its original plant, in Madera, suspended operations in January.

Pacific Ethanol currently only operates its Boardman, Ore., facility, giving it 60 million gallons a year of ethanol out of total capacity of 220 million gallons.

While the bankruptcy filing was no great surprise, the unusual division among production, management and marketing divisions left Kment scratching his head.

"It's really hard to tell what their long-term plan or their goals are in the industry," he said. "How strong will they actually be? Will they be able to pull these other entities out of bankruptcy?"

A Pacific Ethanol spokesman declined to comment Monday about the bankruptcy structure, saying such a discussion would be speculative.

In a news release Monday, Pacific Ethanol's chief executive said the company had worked with its creditors on a plan to continue operating.

"We are unwavering in our vision of being a leading producer and marketer of low-carbon fuels in the Western United States," Neil Koehler said.

Kment noted that Pacific Ethanol is somewhat different than the rest of the corn ethanol industry in that it operates relatively small production plants close to where the fuel is consumed but must bring in large amounts of corn from the Midwest to supplement limited supplies of California-grown corn. Most ethanol is produced in the Midwest at big plants -- a capacity of 250 million gallons a year is not unusual -- and the finished product is shipped to fuel distributors in the rest of the country.

Contact reporter Reed Fujii at (209) 546-8253 or rfujii@recordnet.com.

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