BioFuel Energy's (BIOF) dismal quarterly report and financial situation casts doubt on any hope for common shareholders.
BioFuel Energy, an ethanol production company, reported its Q2 results on August 12, 2013. It reported continued large net losses, negative gross profits, and expiration of its grace period on its debt 2 weeks prior. This used to be a company that held quarterly conference calls for investors. Now management doesn't even make formal comments in its press releases. From the PR:
For the quarter ended June 30, 2013, the net loss was $4.7 million on revenues of $91.0 million, compared with a net loss of $12.4 million on revenues of $122.8 million for the quarter ended June 30, 2012. For the quarter ended June 30, 2013, the net loss attributable to common stockholders was $4.1 million, or $0.77 per share, while for the quarter ended June 30, 2012, the net loss attributable to common stockholders was $10.6 million, or $2.05 per share.
For the quarter ended June 30, 2013, the Company's operating loss was $5.4 million, which resulted from $93.3 million in cost of goods sold and $3.1 million in general and administrative expenses. During the second quarter of 2013, the Company also had $2.6 million of other income while incurring $2.0 million in interest expense, which resulted in a net loss of $4.7 million.
BioFuel Energy obviously can continue on its same path of results like these when it can't even have positive gross profit margins, never mind continued devastating losses. From the 10Q filing:
Our cost of goods sold is affected primarily by the cost of corn and natural gas
These costs are obviously something beyond BioFuel Energy's control. While it's certainly possible the cost of corn and natural gas could change drastically in BioFuel Energy's favor, it's certainly not doing so currently.
BioFuel Energy's options
BioFuel Energy is now considering selling the entire operating plants of the company to several potentially interested parties. However, "no third party has offered to acquire one or both of the plants on terms that would result in meaningful residual proceeds accruing to the Company." In other words, under the current terms of offer on the table, the company would be stripped of its operations leaving shareholders with a debt-laden shell.
Another option BioFuel Energy's lender (First National Bank of Omaha) has had is "to transfer ownership of their respective ethanol plants, including the underlying real property, personal property and all material contracts used to operate the plants." BioFuel Energy would retain a 1% equity interest in the new company created, immediately wiping out 99% of common shareholder interest in the plants in exchange for a full release of its debt obligation. This is essentially a bankruptcy plan without the formal paperwork, leaving shareholders almost completely wiped out. As of June 30, BioFuel Energy was behind $17.6 million in debt and interest payments.
Even if shareholders retain a 1% equity interest and get released from the First National Bank of Omaha debt, there would still be well over $20 million in liabilities left in the resulting shell of a company. BioFuel Energy could ultimately be forced to sell its 1% interest. It's hard to imagine any scenario that would be good for shareholders. With a market cap of over $20 million, BioFuel Energy is valuing the new company at over $2 billion. $2 billion seems highly unlikely with other biofuel companies trading at a fraction of that such as Rentech (RTK), FutureFuels (FF), Green Plains Renewable Energy (GPRE), and Renewable Energy Group (REGI).
BioFuel Energy's problems don't end there.
If you look in the most recent 10Q SEC filing, the accounts payable account to Cargill, its corn supplier, dwindled down from $9.0 million to $3.6 million in the last 6 months. This suggests Cargill may be tightening up the credit available to BioFuel Energy. The 10Q warns:
The Operating Subsidiaries have also relied upon extensions of payment terms by Cargill as an additional source of liquidity and working capital
This arrangement may be terminated at any time on little or no notice, in which case the Operating Subsidiaries would need to use cash on hand or other sources of liquidity, if available, to fund their operations.
Given BioFuel Energy's terrible financial shape and possible loss of its plants entirely, I can't imagine Cargill wants to be holding the bag in debt owed to it by an operations-less BioFuel Energy. If Cargill is tightening up the purse strings as I suspect, this puts even more pressure on BioFuel Energy's limited financial resources.
Is there any hope whatsoever for shareholders of BioFuel? I have trouble even dreaming up a possible scenario where they aren't hurt badly at best, completely wiped out at worst. BioFuel Energy is worth watching in case some positive development emerges out of left field. Investors should watch for any financing developments or improvements in the operating margins of its biofuel (perhaps a large and sudden rise in market fuel prices could save the day). Good luck to all.