Pacific Ethanol nearly out of gas

SACRAMENTO
April 1, 2009 12:01am

Dreams of becoming one of the nation’s largest makers of ethanol are turning into financial nightmares for Pacific Ethanol Inc. of Sacramento.

The company says it has only enough cash on hand to operate until perhaps the end of the month.

“We do not currently have sufficient liquidity to meet our anticipated working capital, debt service and other liquidity needs in the very near-term,” the company says in a filing with the Securities and Exchange Commission.

Pacific Ethanol says it has suspended operations at three of its four ethanol production facilities due to market conditions and in an effort to conserve capital. One of those, a 60 million gallons per year plant at the Port of Stockton, was opened to great fanfare in September 2008.

“Despite any additional cost-saving steps we may take, we believe that we have sufficient working capital to continue operations only until approximately April 30, 2009 at the latest unless we successfully restructure our debt, experience a significant improvement in margins and obtain other sources of liquidity,” the company says.

Lenders, which are owed some $261 million, have ranted the company until April 30 to come current with its payments on the loans. “Once those forbearance periods expire or in the event of additional defaults, we will be in default to those secured creditors who collectively hold security interests in substantially all of our assets,” the report to the SEC says.

“If we cannot restructure our debt and obtain sufficient liquidity in the very near term, we may need to seek to protection under the U.S. Bankruptcy Code,” the company says.

“Based on the current spread between corn and ethanol prices, the industry is operating at or near break-even cash margins. The current spread between ethanol and corn prices cannot support the long-term viability of the U.S. ethanol industry in general or us in particular,” the company says.

Two of Pacific Ethanol’s production facilities are located in the Central Valley – its original plant in Madera and in Stockton. It also has plants in Boardman, Ore., and Burley, Idaho. It has a minority interest in a plant in Windsor, Colo.