U.S. Ethanol Producers Facing Liquidity Challenge
From boom to bust, it’s been a quick round-trip for ethanol producers and the credit crisis is only the latest in a series of issues that have raised liquidity concerns, according to Moody’s Investors Service in a special report.
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The ratings agency downgraded the debt of Aventine Renewable Energy Holdings (NYSE: AVR) in September as the credit crisis worsened. AVR is Moody’s only remaining rated company in the industry following VeraSun Energy Corp.’s (VSE) bankruptcy filing last month.
We believe ethanol companies will be challenged to preserve existing sources of liquidity in order to survive until external financing opportunities become available or until industry margins improve, which may take up to two to three years when ethanol supply and mandated usage are closer to being balanced.
Besides access to credit, the industry’s challenges include:
- Supplies that outstrip demand and tight profit margins
- Distribution bottlenecks
- Relatively high corn prices due to federally mandated ethanol usage
- Falling oil prices that reduce cost advantage of blending ethanol for gasoline
For details, see “Ethanol: Liquidity problems, commodity prices squeeze sector.”
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