“Lack of Collateral” Damage: Abengoa’s Descent into Fiscal Hell, and Its Hopes for Redemption

We reported last month that company has already received possible offers from investment funds, as well as from a local Brazilian investor for the Brazilian piece.

Abengoa Bioenergy CEO Antonio Vallespir said, “Filing and consolidating the cases in St. Louis…provides the opportunity for a coordinated and supervised reorganization or sale process, while still allowing each involved debtor company substantial control over its own costs, debts and assets.

For now, US bankrupcy courts are allowing Abengoa to borrow money to operate its US facilities, giving a preliminary OK to raising up to $7 million in debtor-in-possession financing. This, despite opposition from existing creditors who expressed fears that cash would be transferred from the US to Spain to prop up the parent. At the end of the month, Abengoa expects to be back in court with a DIP financing deal for final OK.

For now, though out of bankruptcy, the cellulosic project in Hugoton has suspended production. Previously, the technology is running, but not running continuously at the production rate Abengoa needs — so read this as “production suspended due to corporate financing woes” rather than “technology failure”. And Abengoa has indicated that the project would be in “ramp-up” throughout 2016.

It is anticipated that assets in Europe, Brazil and the US will be sold off piecemeal or by region rather than all going to one major global entity as may have been expected when the company first announced its financial troubles.

Meanwhile, Abengoa S.A. is currently in the process of negotiating a viability plan for the global organization of the company and aims to maintain business activity in all areas.

It didn’t help that the Obama Administration crushed cellulosic ethanol this week with news that they would not aggressively set cellulosic targets or bump overall ethanol numbers — leaving cellulosic projects in the unenviable position of competing for market share with first-gen ethanol.

Observers pointed to the EPA’s 230 million gallon target for cellulosic biofuels for 2016 — almost double the 123 million target for 2015 — but biogas producers as of September had ratcheted up production sharply and had reached a 160 million gallon annual rate, leaving not much headroom for either liquid cellulosic biofuels of any flavor.

Late last month, the latest report from Lux Research says that Abengoa’s second-generation ethanol facility in Hugoton has the most expensive production cost in the world at about $4.55 per gallon while Raizen has the lowest at $2.17 per gallon. The report says the problem comes from feedstock cost, accounting for around 40% of the production cost, with Abengoa having to pay $90 per dry ton of stover while Raizen only pays $38 for its bagasse.

True, not true? Alas for fans of Lux (and we’re among them), they missed the boat on this one. Every source we’ve checked with confirms that Abengoa’s feedstock costs are materially lower than reported in the Lux report, which drew on third-party sources, primarily academic estimates, as opposed to in-field supplier checks. READ MORE / MORE