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Global Credit Research - 01 Dec 2010
$200mm of new rated debt affected
New York, December 01, 2010 -- Moody's Investors Service assigned Aventine Renewable Energy Holdings,
Inc.'s ("Aventine") a Caa1 Corporate Family Rating (CFR) and rated
its proposed term loan B due 2015 Caa1. The proposed term loan
will refinance $155 million of notes and provide approximately
$29 million of cash for general corporate purposes. A speculative
grade liquidity rating of SGL-4 (poor liquidity) was also assigned.
These are first time ratings for Aventine since it emerged from bankruptcy
on March 15, 2010. The outlook remains stable. The
following summarizes the ratings.
Aventine Renewable Energy Holdings, Inc.
Corporate Family Rating -- Caa1
Probability of Default Rating -- Caa1
$200mm Sr sec term loan B due 2015 -- Caa1 (LGD4, 54%)
Speculative grade liquidity rating - SGL-4
Aventine's CFR reflects its modest size ($431 million of
revenues for the twelve months ended September 30, 2010),
narrow product profile with predominately one commodity product (ethanol),
poor liquidity and challenging ethanol industry fundamentals. The
company currently operates ethanol plants with 202 million gallons per
year (MGPY) of capacity in two locations, is in the process of completing
and starting two new plants that will add 220MGPY of capacity, and
has acquired a small 37MGPY plant that will bring total capacity to approximately
460MGPY. The ethanol industry is supported by a myriad of federal
and state legislation that mandates the use of ethanol and provides economic
incentives to blenders. However, despite ongoing positive
governmental support (e.g., in 2010, the EPA
has supported the use of E15 for model year 2007 and newer light vehicles)
and increasing mandated usage under the renewable fuels standard,
government legislation has not assured the profitability of producers.
Cash margins have varied significantly, leaving producers with break-even
cash margins at times, and played a role in many producers filing
for bankruptcy protection in the past. The ratings also consider
industry conditions including low barriers to entry, ethanol capacity
and excess ethanol usage credits from prior years in excess of mandated
demand, a large sophisticated customer base and the presence of
competitors with substantially greater resources.
The ratings are supported by modest leverage for the rating category ($0.43
per gallon of capacity), attractive manufacturing assets such that
Aventine believes it is a low cost producer, and a lower cost structure
after restructuring in the bankruptcy process. Aventine enjoys
new plants with low capital expenditure requirements, lower operating
costs per gallon of ethanol produced at its wet mill plant, access
to amply corn supplies in the areas surrounding its plants and low transportation
costs due to water access at the Mt. Vernon plant.
The company's SGL-4 speculative grade liquidity rating (poor
liquidity) based on our expectations that it does not currently have sufficient
backup liquidity to cover potential periods of poor industry margins,
fluctuating liquidity needs for hedging and unforeseen sector circumstances,
which industry participants have faced in the past. Most of the
firm's capital expenditures for its new plants and the acquisition
cost of the Canton, IL facility will be completed in 2010,
but the company will be required to fund the working capital associated
with the new plants. We would expect the firm to have at least
$100-$150 million of excess liquidity sources after
it has all of its new facilities operating before we would consider liquidity
adequate. Liquidity is provided by unrestricted cash balances ($42
million as of September 30, 2010), a $20 million revolving
credit facility due 2013 and expectations for positive cash flows from
operations. Industry margins have historically varied significantly
and future positive cash flow from operations is difficult to predict.
The proposed term loan financing will add approximately $29 million
to cash balances and the company had $19 million of restricted
cash (as of September 30, 2010) that could be partially or wholly
released to the company in the future. As of September 30,
2010, the $20 million revolver had no borrowings and $5.5
million of letters of credit, leaving $9.4 million
of availability. We would expect the revolver to be increased to
support greater working capital and potential hedging needs as the company
grows its capacity. Additionally, the company could seek
other sources of funds, such as an equity offering. However,
our liquidity analysis only considers the company's current sources
of liquidity, given the lack of certainty associated with alternate
The stable outlook reflects our expectations that the firm will seamlessly
startup its new capacity and work to improve its liquidity. The
industry is supported by favorable government legislation that can support
near-term cash requirements, expectations for steady operating
cash flow from its recent ethanol capacity addition, and favorable
ethanol legislative environment conditions. The rating could be
upgraded if the company is successful in starting up its new plants,
improves its liquidity such that it has at least $100-150
million of excess liquidity and generates positive free cash flow.
A deterioration in liquidity, further levering of Aventine's
balance sheet or prolonged periods of unattractive operating margins could
put negative pressure on the rating.
The principal methodologies used in this rating were Global Chemical Industry
published in December 2009, Speculative Grade Liquidity Ratings
published in September 2002, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Aventine is a producer and marketer in the United States of ethanol used
as a blending component for gasoline. It produces ethanol and co-products
at its wholly-owned Pekin, IL wet milling and dry milling
plants and its dry milling Aurora, NE plant. It is building
two new 110MGPY dry mill facilities in Mt Vernon, IL (to start in
Q4 2010) and Aurora, NE (to start in H1 2010), and purchased
a 37MGPY facility in Canton, IL in August 2010. The firm
emerged from bankruptcy on March 15, 2010. Revenues for the
twelve months ended September 30, 2010 were approximately $431
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Aventine Caa1 CFR; rates new term loan Caa1
250 Greenwich Street
New York, NY 10007
No Related Data.
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