Southwest Iowa negotiates conversion of $26 million convertible debt

By Toni Weeks

San Luis Obispo, Calif., Dec. 11 – Southwest Iowa Renewable Energy, LLC entered into agreements with strategic partners Bunge NA, Inc. and ICM Investments, LLC on Dec. 5 concerning the conversion of roughly $26 million of outstanding convertible subordinated debt held by Bunge and ICM, which the company had intended to pay in full on Dec. 22. Southwest Iowa informed the two companies on Nov. 21 its intention to pay the subordinated debt in full.

According to an 8-K filing with the Securities and Exchange Commission, the convertible debt terms provide that Bunge and ICM may convert the subordinated debt into the company’s units with a conversion price of $3,000 per unit.

The company’s equity value per unit as of Sept. 30 was about $7,570 per unit.

According to the filing, Southwest Iowa has entered into several agreements with Bunge in connection with Bunge’s agreement not to convert the debt. Those agreements include an amended and restated ethanol purchase agreement, amended and restated grain feedstock agency agreement, a services agreement regarding corn purchases and an amended and restated distiller’s grain purchase agreement.

In addition, the company and Bunge have agreed to terminate a corn oil agency agreement dated Nov. 12, 2010 and a risk management services agreement dated Dec. 15, 2008.

ICM, however, is contemplating the conversion of debt into units. On Dec. 5, the company and ICM executed a waiver and forbearance agreement to waive the 15-day minimum required period for notice of conversion such that ICM may convert its debt on Dec. 19.

The company and ICM are in final negotiations on contractual arrangements related to ICM’s units in the company, and if ICM provides a conversion notice, Southwest Iowa will accept the notice and effect the conversion on Dec. 19, the filing said.

ICM’s debt is in the principal amount of $6,726,757.85. Bunge’s debt is in the principal amount of $19,517,136.99.

The issuer is an ethanol producer based in Council Bluffs, Iowa.

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