Aventine reconsiders sale in bankruptcy

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Aventine is prepping a standalone plan of reorganization (POR) that would fully equitize its USD 300m 10% senior unsecured notes and rely on a new capital injection from the hedge funds that own its bonds, three sources familiar with the situation told Debtwire.

The standalone reorganization strategy marks a break from the bankrupt ethanol producer’s strategy announced in May to evaluate preliminary buyout bids for a sale. Subsequent improvement in the ethanol industry and in capital markets enticed the creditors to re-invest in pursuit of greater returns though a restructuring, the sources said.

Falling corn prices have pushed up the profit margin between the costs of corn and ethanol, referred to as the crush spread, to USD 0.65 per gallon this week, up from USD 0.15 per gallon in early June. Aventine’s 10% notes traded at 51 on 2 September, up from 15 on 8 April, the day the company filed for bankruptcy, according to MarketAxess.

Aventine intends to file its POR with the Delaware Bankruptcy Court around the New Year. The plan considers recapitalizing the company with a new secured bond of around USD 100m backstopped by the ad hoc committee of 10% bond holders and with a new USD 30m working capital revolver.

The committee, which includes Brigade Capital Management, Nomura, Whitebox Advisors and Pandora Select Partners, already provided Aventine with a USD 30m DIP loan to tide it through bankruptcy.

At exit, excess cash generated in bankruptcy is expected to be used to pay down USD 35m of pre-petition bank debt and the DIP borrowings, the sources said.

Proceeds for the new note and revolver should give the company enough liquidity to fund operations and to complete the USD 70m of work left on two partially built expansion projects, the sources said. Aventine’s EBITDA margins of roughly USD 0.30-USD 0.35 per gallon this month imply a run-rate EBITDA near USD 65m, two of the sources said.

Depending on the pricing of the Aventine’s debt at emergence, the company’s low capex needs of USD 12m per year should unlock free cash flow, the two sources added.

Calls to Aventine and financial advisor Houlihan Lokey were not returned.

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