Turning Distress into Success - NEDAK Ethanol LLC Debt Restructuring and Infusion of Equity
NEDAK Ethanol LLC was conceived in 2006 by a group of local investors and farmers in order to build a 44 million gallon ethanol plant in Atkinson, Nebraska. The company was initially well capitalized, having successfully raised $47.94 million of public equity, $42.5 million of senior debt and $6.86 million in tax increment financing. NEDAK encountered construction problems and delays that led to the plant starting production during difficult industry conditions and low margins. As a result, throughout 2010 and 2011 NEDAK operated with limited liquidity and tight profitability and was unable to take advantage of industry opportunities.
It became clear that in order to be a long-term survivor in the ethanol industry NEDAK needed to restructure its debt and bring in new capital. Ascendant Partners was hired to facilitate this process. The foundation for success in a distressed restructuring situation such as this is laid through a collaborative and disciplined planning process designed to reposition the company prior to re-entering the capital markets. Upfront planning and analysis are keys to success in a complex financial restructuring. In this case the planning and analysis steps included:
• Working with all constituents (senior lenders, subordinated lenders, board members, shareholders, other stakeholders) to ensure a clear understanding of their goals and objectives as well as concerns and how they fit with the company’s current and future situation
• Conducting comprehensive industry and competitive analysis, including benchmarking performance versus other ethanol plants
• Identifying strengths of the company and how to build on those strengths
• Identifying the weaknesses and how to best mitigate them
• Preparing a plan to re-position the company to secure an optimal capital structure given the circumstances
• Ensuring a competitive process to soliciting and selecting investor candidates that are best matched to the company’s unique investment opportunities
• Continually working with all stakeholders to keep everyone on the same page and working together to complete the recapitalization
A distressed restructuring will present many difficult challenges along the way, too often which result in failure. Detailed preparation, effective participant alignment and execution of the plan prior to and during the process are important factors in protecting shareholder value and rectifying lender concerns. NEDAK’s commitment to following these steps, with Ascendant’s assistance, allowed it to successfully restructure its senior debt, obtain new capital from both existing and new investors, and enter into an asset management agreement designed to better manage its working capital -- all key components for positioning the company for long-term success.