John Lindt

Originally launched in Fresno, Pacific Ethanol is on the ropes this month, announcing in the past week it would look to restructure as coronavirus-related losses mount for the Sacramento-based company.

In a Securities and Exchange Commission (SEC) filing March 30, the company said, “We do not expect to have sufficient liquidity to meet our anticipated working capital, debt service and other liquidity needs unless we successfully restructure our debt, sell assets, experience a significant improvement in margins and/or obtain other sources of liquidity.”

The SEC statement added, “If margins do not promptly and sustainably improve from current levels, we may be forced to further curtail or cease production at one or more of our operating facilities.”

The company is one of the largest producers and marketers of low-carbon renewable fuels in the U.S. It has nine plants, including two in the state supplying the ethanol fuel blended with California gasoline.

The company noted the latest virus impact is not the only factor in its problems, citing “significant adverse conditions throughout most of 2018 and 2019, and thus far into 2020, as a result of industry-wide record low ethanol prices due to reduced demand and high industry inventory levels.”

Plants in California include facilities in Madera and Stockton. There is one plant in Oregon and one in Idaho, as well as five in the Midwest.

On an annualized basis, it markets nearly 1 billion gallons of ethanol and more than 3 million tons of ethanol co-products on a dry matter basis.

In March, Pacific Ethanol secured a two-month deferral of principal and interest payments on its secured debt through May 20 as the company works with its lenders to restructure its balance sheet and improve liquidity while continuing to pursue strategic initiatives. To support Pacific Ethanol in these efforts, the company has engaged a chief restructuring officer, Winston Mar, on a consulting basis. In addition, the company is on track to close the sale of its 74% ownership interest in Nebraska-based Pacific Aurora, LLC, to Aurora Cooperative Elevator Co., the $52.8 million definitive agreement for which the company signed in February.

Pacific Ethanol says it is now focusing on alcohol production to be used in sanitizers, and it is doing everything possible to increase capacity to meet the uptick in demand.

The collapse of oil and gas prices has further impacted fuel ethanol margins as Saudi Arabia earlier this year decided to flood the global market with crude oil. That has caused gasoline, and by extension, ethanol prices to fall to multi-decade lows. This happened at a time the supply of ethanol had grown to all time highs.

The trade war hurt ethanol exports at the same time. For several years, the Trump administration gave waivers to some oil companies to not blend the required amount of ethanol. That issue still hangs in the balance.

Pacific Ethanol was founded in 2003 in Fresno by farmer and former California Secretary of State Bill Jones and Green Party member Neil Koehler. Their business model included extracting ethanol from corn, and selling a byproduct of the extraction process — wet distillers grain, one of the most nutrient-rich cattle feeds available — to dairy farms in Central California. It was ethanol’s capability of serving as a total or partial replacement for gasoline that prompted the federal government to encourage its use in the wake of the Arab Oil Embargo of 1973.