Southwest Georgia Ethanol, LLC (the “Debtor” or “SWGE”) filed a Voluntary Petition under Chapter 11 of the Bankruptcy Code on February 1, 2011 in the Bankruptcy Court for the Middle District of Georgia (Albany Division, transfer request to Macon Division pending) (Case No. 11-10145). The Honorable Judge James D. Walker Jr. has been assigned to the case. With this filing, another ethanol producer seeks bankruptcy protection, going the way of Verasun Energy Corporation and Pacific Energ2y Resources Ltd. Suppliers and trade creditors should hope this bankruptcy has a happier ending. Both Verasun Energy Corporation and Pacific Energy Resources Ltd. are now in the midst of mass bankruptcy preference litigation (although the Iowa corn farmers were able to escape the claims in the Verasun Energy Corporation bankruptcy).
The Debtor’s first day motions were supported by the declaration of Lawrence Kamp, its Chief Financial Officer (the “Kamp Declaration”). The Kamp Declaration provides the information in the following paragraphs about the Debtor, the reasons for its bankruptcy and its financial picture.
The Debtor’s Business
The Debtor owns and operates an ethanol production facility located on 267 acres in Mitchell County, Georgia, producing approximately 100 million gallons of ethanol annually. For its fiscal year ending September 30, 2010, the Debtor generated $168,892,332 in revenue. For the fiscal year ending September 30, 2010, the Debtor derived approximately 80% of its total revenue from the sale of ethanol. The balance of its revenue came from the sale of co-products of its ethanol production process.
Corn is the principal raw material used by the Debtor. The Debtor explains that “To produce 100 million gallons of ethanol per year, the Debtor processes approximately 36 million bushels of corn, or approximately 100,000 bushels per day.” The ethanol produced by the Debtor is primarily used for blending with unleaded gasoline and other fuel products. Simply stated, the profitability of the Debtor’s operations largely are dependent upon the price it must pay for corn as compared to the price it receives for the ethanol it produces.
As of December 31, 2010, the Debtor had assets of approximately $164,702,843 and liabilities of approximately $134,132,366.
The Reasons for the Bankruptcy
The Kamp declaration succinctly states reasons for the Debtor’s slide into bankruptcy:
Ultimately, the combination of unfavorable fluctuations in commodity prices of corn and ethanol, operational difficulties due to working capital restrictions and events beyond the Debtor’s control, the Debtor’s projected inability to satisfy its working capital debt maturity, and the Debtor’s inability to restructure its overall debt obligations have precipitated its need to seek to reorganize under Chapter 11 of the Bankruptcy Code.
The financial bottom line is that the Debtor suffered substantial net losses in the last 15 months: $2,200,000 for the 12 month period ending September 30, 2010 and $2,020,839 for the 3 month period ending December 31, 2010.
Loans and Trade Debt
The Debtor’s primary loan facility is a secured loan having a balance of principal and interest on the petition date of $107,059,404. The Debtor’s obligations under this loan facility are secured by a first-priority security interest in all of the Debtor’s assets. The Debtor identified the following eight secured lenders under the loan facility: AgCountry Farm Credit Services, FCLA; AgFirst Farm Credit Bank; Bank of Camilla; CoBank, ACB; Farm Credit Bank of Texas; Northwest Farm Credit Services, PCA; Planters and Citizens Bank; and WestLB AG, New York Branch.
The Debtor also is party to a subordinated debt financing arrangement pursuant to which the Mitchell County Development Authority issued revenue bonds that were placed with Wachovia Bank. As of the Petition Date, the outstanding balance owing under the Mitchell County Development Authority note is $8,615,000.
The Debtor also made a promissory note in favor of Fagen, Inc. for amounts owing for the remaining design-build contract balance for the construction of the Debtor’s facility. As of the Petition Date, the outstanding principal balance owing under the Fagen, Inc. note is $3,977,544.83, plus $323,000 in accrued interest through January 31, 2011.
As of the Petition Date, the Debtor had accounts payable and other accrued expenses owing in the approximate amount of $8,466,875.81. The creditors holding the 20 largest unsecured claims account for over $6.6 million of this amount. (See Debtor’s Expanded List of Top 50 Unsecured Creditors below.) The Debtor is seeking authority to pay up to $5.6 million pursuant to the Section 503(b)(9), shippers and warehousemen and critical vendor motions discussed below.
Debtor’s Motions Seeking Authority to Pay Prepetition Trade Claims
The Debtor filed the following 3 “first day” motions seeking authority to pay or approval of procedures for payment of prepetiton trade claims:
- Motion of the Debtor for Order Authorizing Payment of Prepetition Shipping, Delivery, and Warehousing Charges;
- Motion for an Order Pursuant to 11 U.S.C. §§ 105 and 503(b), (A) Confirming Grant of Administrative Expense Status to Obligations Arising From Prepetition Delivery of Goods Received By The Debtor Within 20 Days of The Commencement Date of This Chapter 11 Case, (B) Confirming Grant of Administrative Expense Status to Obligations Arising From Postpetition Delivery of Goods And Services, And (C) Authorizing, But Not Directing, the Debtor to Pay Such Obligations in the Ordinary Course of Business; and
- Motion to Establish Critical Vendor Payment Procedures.
Under the Shipping and Warehousing motion the Debtor estimates that it may pay up to $2 million in prepetition claims. Under the 503(b)(9) motion, the Debtor has estimated $3.1 million might be paid. The Debtor does not provide an estimate of the amount that may be paid under the critical vendor procedures motion.
Eleventh Circuit Bankruptcy Courts apply much stricter standards for approval of payments on prepetition trade claims than do the courts of the Second Circuit (New York) and Delaware (Third Circuit). The amounts sought to be paid by the Debtor under the first two motions are substantial and the sheer size of those payments might be a problem. With respect to the warehousemen and shippers motions, the existence of potential liens by these creditors might be enough to justify the payments. The payments under the 503(b)(9) motion might be justified on the basis that the issue is simply one of accelerating administrative priority payments that ultimately will be made in any event.
Will Procedures Solve Critical Vendor Payment Limitations
The critical vendor procedures motion, through the “procedures” moniker, attempts to deal with the substantial reluctance of Georgia Bankruptcy Courts to approve “critical vendor” prepetition claims. The motion allows the Debtor to make one or more critical vendor payments under narrow circumstances. After each such payment, the Debtor must file with the Court and provide the US Trustee, certain lenders and the creditors committee notice that such payment has been made. Any “party in interest” can then object to such payment in the 30 days after the notice. If “the Court determines that a payment was not properly authorized”, the payment to the creditor must be reversed, either by applying the amount paid to otherwise due post-petition payments or by repayment.
The Debtor already identified certain “critical vendors” applying three criteria:
(a) Whether (i) the goods and services supplied by a particular vendor are essential to the continued operation of the Debtor’s business and cannot be obtained from any other vendor, or, could be obtained from another vendor only at such extra cost or at such delay as to outweigh the cost of paying the prepetition claim, or (ii) whether the vendor was in possession of valuable property of the Debtor that is necessary to its ability to generate revenue;
(b) Whether the cost of paying the prepetition claim of such vendor, to the extent that such claim is fixed, noncontingent, liquidated, and undisputed (the “Critical Vendor Claim”), is outweighed by the benefit such payment is likely to secure on behalf of the Debtor’s estate and other creditors; and
(c) Whether such vendor would likely continue doing business with the Debtor notwithstanding nonpayment of prepetition claims, such as those vendors subject to long-term, non-terminable contractual commitments.
Whether Judge Walker is going to authorize the Debtor’s request critical vendor procedures remains to be seen. Even if the procedures are authorized, receiving and keeping a critical vendor payment will be challenging. Nevertheless, successfully running the gauntlet may be the only way to see any payment anytime soon … if ever.
Key Players
Debtor:
Southwest Georgia Ethanol, LLC, Debtor in Possession
dba
Southwest Georgia Ethanol, LLC, a FUEL Company
4433 Lewis B. Collins Road
Pelham, GA 31779
229-522-2822
Debtor’s Counsel:
John Michael Levengood
McKenna Long & Aldridge LLP
303 Peachtree Street
Suite 5300
Atlanta, GA 30308
404-527-4830, Fax : 404-527-4831
United States Trustee:
Elizabeth A. Hardy,
Assistant United States Trustee,
Office of United States Trustee,
440 Martin Luther King Jr. Boulevard, Suite 302, Macon, GA 31201,
Telephone: (478)752-3544;
Fax: (478)752-3549
[Update: Note that the Debtor filed an amended petition increasing the top 20 list to a top 50 list. The Debtor’s expanded list is set forth below.]
The Debtor's List of Holders of Largest Unsecured Claims
The Debtor has filed a list of the holders of the Debtor's largest unsecured claims. The list is set forth below. Bankruptcy Rule 1007(d) provides that a debtor shall file “a list containing the name, address and claim of the creditors that hold the 20 largest unsecured claims... .” Fed. R. Bankr. P. 1007(d). The list does not include: (1) persons who come within the definition of “insider”); or (2) secured creditors, unless the value of the collateral is such that the unsecured deficiency places the creditor among the holders of the largest unsecured claims. The Top Unsecured Creditor List is never to be considered a waiver of any defense to or “allowability” of a listed claim or an admission of the amount of any listed claim. It is common for the amount of the claims to shift and sometimes a claim that is initially is undisputed is later disputed. Creditors should always consult the official claims register.
The Debtor's list did not identify any claims that were “Contingent, unliquidated, disputed, or subject to setoff”. Accordingly that column is omitted.
| Listed | Creditor | Nature of claim (trade debt, bank loan, government contract, etc.) | Amount of claim if secured, also the value of the security |
|---|---|---|---|
| 01 | Norfolk Southern Railway P.O. Box 532797 Atlanta, GA 30353-2797 | Trade Debt | $1,441,380 |
| 02 | CSX P.O. Box 44054 Jacksonville, FL 32231-4054 | Trade Debt | $907,467 |
| 03 | Georgia Power 96 Annex Atlanta, GA 30396-0001 | Trade Debt | $847,928 |
| 04 | Performance AG 516 Browns Cove Road, Unit J Ridgeland, SC 29936 | Trade Debt (subject to treatment under 503(b)(9) motion) | $805,027 |
| 05 | City of Camilla Attn: Michael B Larkin, City Manager 30 East Broad St, P.O. Box 328 Camilla, GA 31730 | $729,803 | |
| 06 | O'Hearn Farm Partnership 622 Five Fork Road Shellman, GA 39886 | Trade Debt (subject to treatment under 503(b)(9) motion) | $553,902 |
| 07 | Novozymes North America, Inc. P.O. Box 7247-7554 Philadelphia, PA 19170-7554 | Trade Debt (subject to treatment under 503(b)(9) motion) | $386,663 |
| 08 | Trinity Industries Leasing Co. w510131 P.O. Box 7777 Philadelphia, PA 19175-0131 | Trade Debt | $386,552 |
| 09 | Tison, H.R. 4501 Hwy. 313 Warwick, GA 31796 | Trade Debt (subject to treatment under 503(b)(9) motion) | $316,848 |
| 10 | R.W. Griffin Terminal Services, LLC. P.O. Box 1350 Douglas, GA 31534 | Trade Debt (subject to treatment under 503(b)(9) motion) | $229,680 |
| 11 | Harvey Jordan Farms Attn: Jimmy Webb P.O. Box 399 Leary, GA 39862 | Trade Debt (subject to treatment under 503(b)(9) motion) | $219,222 |
| 12 | Hillside Farms & Commodity Credit Corp 846 GA Highway 216 Arlington, GA 39813-4212 | Trade Debt (subject to treatment under 503(b)(9) motion) | $194,816 |
| 13 | International Dioxide Inc. aka Dupont Water Technologies 40 Whitecap Drive North Kingston, RI 02852 | Trade Debt (subject to treatment under 503(b)(9) motion) | $187,842 |
| 14 | Big Bend Industrial Sales P.O. Box 479 Cairo, GA 39828 | Trade Debt (subject to treatment under 503(b)(9) motion) | $176,687 |
| 15 | McClure Fauns 268 Gates Road Doerun, GA 31744 | Trade Debt (subject to treatment under 503(b)(9) motion) | $159,599 |
| 16 | Eddie Miller Farms and Southwest GA. Farm Credit 1969 Eddie Miller Road Iron City, GA 39859 | Trade Debt (subject to treatment under 503(b)(9) motion) | $149,625 |
| 17 | Robert E. McLendon Farms, LLC P.O. Box 310 Leary, GA 39862 | Trade Debt (subject to treatment under 503(b)(9) motion) | $124,940 |
| 18 | Cherokee Equipment, Inc. 170 Pine Forest Road Bainbridge, GA 39819 | Trade Debt | $123,417 |
| 19 | McClure and Gwimes 268 Gates Road Doerun, GA 31744 | Trade Debt (subject to treatment under 503(b)(9) motion) | $119,078 |
| 20 | Keith White, LLC Attn: Keith White 648 Shingler Sumner Road Poulan, GA 31781 | Trade Debt (subject to treatment under 503(b)(9) motion) | $107,969 |
| 21 | Little River Ag. Inc. Attn: Bert Hurst 1646 Rupp Road Ochlocknee, GA 31773 | Trade Debt (subject to treatment under 503(b)(9) motion) | $85,836 |
| 22 | Sumner, Charles 703 Mitchell Stone Road Omega, GA 31775 | Trade Debt (subject to treatment under 503(b)(9) motion) | $79,263 |
| 23 | Collins, Conner & Drew P.O. Box 306 Edison, GA 39846 | Trade Debt (subject to treatment under 503(b)(9) motion) | $78,887 |
| 24 | Bonner, Joy P.O. Box 421 Arlington, GA 39813 | Trade Debt (subject to treatment under 503(b)(9) motion) | $72,149 |
| 25 | Curry Farms Partners P.O. Box 119 Shellman, GA 39886 | Trade Debt (subject to treatment under 503(b)(9) motion) | $71,684 |
| 26 | T & T Farms Attn: Sonny Thaggard 156 Mossy Dell Road Leesburg, GA 31763 | Trade Debt (subject to treatment under 503(b)(9) motion) | $65,693 |
| 27 | Georgia & Florida Railway 7441 Reliable Parkway Chicago, IL 60686-7441 | Trade Debt | $65,036 |
| 28 | Flottweg P.O. Box 635920 Cincinnati, OH 45263-5920 | Trade Debt | $62,206 |
| 29 | Quality Gin Attn: Jamie Wilson and Tony Lee P.O. Box 70 Shellman, GA 31786 | Trade Debt (subject to treatment under 5030)(9) motion) | $60,750 |
| 30 | Young, William Thommy 190 Osierfield Drive Wray, GA 31798 | Trade Debt (subject to treatment under 503(b)(9) motion) | $58,602 |
| 31 | Illingworth Engineering Co. Attn: 13111 Molt 317 Baybrook Street Thomasville, GA 31792 | Trade Debt | $53,908 |
| 32 | North American Bioproducts Corporation 1815 Satellite Blvd. Duluth, GA 30097 | Trade Debt (subject to treatment under 503(b)(9) motion) | $51,281 |
| 33 | First Insurance Funding Corp P.O. Box 3306 Northbrook, IL 60065-3306 | Trade Debt | $50,011 |
| 34 | Hattaway Farms PPR 23717 U. S. Hwy 27 Bluffton, GA 39824 | Trade Debt (subject to treatment under 503(b)(9) motion) | $49,112 |
| 35 | Oak Hill Farms P.O. Box 150 Leesburg, GA 31763 | Trade Debt (subject to treatment under 503(b)(9) motion) | $44,966 |
| 36 | Hunt Industries P.O. Box 1606 Valdosta, GA 31603-1606 | Trade Debt | $43,598 |
| 37 | MelMitch Farms Inc P.O. Box 421 Arlington, GA 39813 | Trade Debt (subject to treatment under 503(b)(9) motion) | $43,314 |
| 38 | Bearings & Drives, Inc. 2216 Toledo Drive Albany, GA 31705 | Trade Debt | $37,235 |
| 39 | Statesboro Grain 1001 Matthews Road P.O. Box 2085 Statesboro, GA 30459 | Trade Debt (subject to treatment under 503(b)(9) motion) | $37,169 |
| 40 | MeGladrey & Pullen 5155 Paysphere Circle Chicago, IL 60674 | Trade Debt | $35,000 |
| 41 | Johnny and Jody Johnson 6119 Grooverville Road Quitman, GA 31643 | Trade Debt (subject to treatment under 503(b)(9) motion) | $34,181 |
| 42 | Tanner Industries, Inc. 735 Davisville Road South Hampton, PA 18966 | Trade Debt (subject to treatment under 503(b)(9) motion) | $33,500 |
| 43 | Industrial Hub Of Carolinas 1610 West Lucas Street Florence, SC 29501-1222 | Trade Debt | $31,831 |
| 44 | ChemTreat, Inc. 15045 Collections Center Drive Chicago, IL 60693 | Trade Debt (subject to treatment under 503(b)(9) motion) | $24,521 |
| 45 | Harrell, Rodney 1837 Hwy 195 Leesburg, GA 31763 | Trade Debt (subject to treatment under 503(b)(9) motion) | $21,679 |
| 46 | RSM McGladrey 5155 Paysphere Circle Chicago, IL 60674 | Trade Debt | $21,530 |
| 47 | JCB Transportation, Inc. 8205 Mt. Olive Road Camilla, GA 31730 | Trade Debt | $20,206 |
| 48 | TOPSSCo Sales and Service P.O. Box 7828 Savannah, GA 31418 | Trade Debt | $19,710 |
| 49 | Alternative Methods, Inc. P.O. Box 344 Cedar, MN 55011 | Trade Debt | $19,451 |
| 50 | Invensys Systems Inc. 14526 Collection Center Drive Chicago, IL 60693 | Trade Debt | $18,825 |