Southwest Georgia Ethanol files bankruptcy amid liquidity constraints

By Caroline Salls

Pittsburgh, Feb. 2 - First United Ethanol, LLC's wholly owned subsidiary, Southwest Georgia Ethanol, LLC, filed Chapter 11 bankruptcy Tuesday in the U.S. Bankruptcy Court for the Middle District of Georgia to reorganize its balance sheet, according to a news release.

In connection with the filing, a group of Southwest Georgia Ethanol's lenders has agreed to support the ongoing restructuring efforts with a $10 million debtor-in-possession facility.

The administrative agent is WestLB AG, New York Branch.

Interest will be Libor plus 900 basis points.

The facility will mature on the earliest of six months after closing, the acceleration of the DIP loan, termination of the interim order, upon conversion or dismissal of the Chapter 11 case and the effective date of the company's plan of reorganization.

The company is seeking interim access to $5 million of the DIP financing.

The company said it expects to continue normal business operations while in bankruptcy.

First United said the subsidiary's bankruptcy filing results from liquidity constraints arising from operational problems that impacted financial performance, the impending maturity of Southwest Georgia Ethanol's working capital facility and from a lack of working capital stemming from increasing input costs and decreasing prices.

"We are using this Chapter 11 filing as a tool to reorganize and protect the value of our business for the long term," First United Ethanol chief executive officer Murray Campbell said in the release.

Southwest Georgia Ethanol does not expect to scale back its purchase of inputs during the reorganization process, and suppliers will be paid in full for all goods and services provided after the filing.

Loan default

According to an 8-K filed with the Securities and Exchange Commission, the bankruptcy filing constituted an event of default under Southwest Georgia Ethanol's loan agreement, which initially provided the company with a $100 million construction loan.

The loan was subsequently converted to a term loan and a $15 million working capital loan.

The default and related acceleration of the loan debt is stayed by the bankruptcy filing.

As of Feb. 1, the subsidiary owed roughly $107 million to the lenders.

Debt details

According to court documents, Southwest Georgia Ethanol had $164.7 million in assets and $134.13 million of debt at Dec. 31.

The company's largest unsecured creditor is Norfolk Southern Railway of Atlanta, with a $1.44 million trade debt claim.

Morgan Keegan & Co., Inc. is the company's investment banker and financial adviser, and McKenna, Long & Aldridge LLP is serving as counsel.

Southwest Georgia Ethanol is a wholly owned subsidiary of First United Ethanol LLC, a Pelham, Ga.-based ethanol producer. The Chapter 11 case number is 11-10145.

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