Biofuel firm misses payment on debt

In another sign of difficulties in the state's ethanol industry, the owner of the idled Fairmont, Minn., ethanol plant has missed a payment on $170 million in debt.

Biofuel Energy Corp., based in Denver, said in a securities filing that it is continuing discussions with lenders about possible forebearance, reinstatement or debt restructuring.

First National Bank of Omaha, acting on behalf of several lenders, declared the company in default for failing a week ago to make a $3.6 million payment of principal and interest, according to a filing Wednesday. The loan is due in 2014.

Biofuel Energy still operates its other ethanol plant in Nebraska, but the company has struggled. It has reported net losses in eight of the past 10 quarters, including a $12.4 million loss in the period ending in June, according to data from Bloomberg News. Six other Minnesota-affiliated ethanol producers have recently reported net losses, according to the Star Tribune's latest quarterly survey.

In August, Biofuel Energy disclosed that Minnetonka-based commodities giant Cargill had allowed the company to extend its payments for corn purchases in order to conserve cash. Cargill owns nearly 8 percent of Biofuel Energy's stock, and has close business relationships, supplying corn to its plants and selling the ethanol and animal feed byproduct.

Late to the ethanol boom

Larry Johnson, a veteran ethanol industry consultant based in Cologne, Minn., said the 110 million-gallon-per-year Fairmont plant is one of several built late in the last decade that is large and highly efficient, but burdened with more debt than older plants that profited from the mid-decade ethanol boom.

It also has a competitor for local corn, Valero Corp.'s 120 million-gallon-per-year ethanol plant eight miles away in Welcome, Minn. Johnson said the area in southwest Minnesota is rich in corn and in better times could support two large plants.

Corn prices climbed this season amid the worst Corn Belt drought in decades. And the ethanol industry has 12 percent to 15 percent more capacity than demand for the fuel additive, Johnson said.

"When that happens, the highest-cost producers are going to be endangered," he said.

The largest Biofuel Energy stockholder, with a nearly 27 percent stake, is Greenlight Capital, a New York hedge fund founded by David Einhorn, author of "Fooling Some of the People All of the Time, A Long Short Story." Einhorn's book details his short-selling triumphs. He declined to comment through a spokesman. Biofuel Energy executives did not return phone calls.

Last week, Biofuel Energy said it would idle its Fairmont plant, which is known as Buffalo Lake Energy, until the company can secure corn at better prices. It planned to retain the plant's 56 employees, the company said at the time.