Aventine Files for Bankruptcy; CEO Miller Points to RINs

Aventine Renewable Energy filed for Chapter 11 bankruptcy protection on Wednesday, yet another ethanol producer to go down the bankruptcy road in recent months.

Just yesterday - and yes prior to the filing - BNET noted the Pekin, Ill.-based company was the next likely suspect among ethanol producers to file for bankruptcy protection. The bankruptcy protection will allow Aventine to continue its operations uninterrupted and solve its debt issues, according to a statement by CEO Ron Miller.

The demise of ethanol producers started last year when corn prices rose, profit margins shrank and access to cash dried up as credit markets tightened. Some were further crippled including ethanol maker VeraSun, which expecting the corn to rise even higher signed contracts to hedge prices on the commodity. The company, which has since filed for bankruptcy, lost millions when corn prices dropped and they were locked in at the higher amount.

But Aventine’s Miller points to another problem in a statement released today: Renewable Identification Numbers. The federal Renewable Fuels Standard requires refiners, blenders and such to show a certain percentage of ethanol is in their gasoline. To expedite the process and make it easy to track, a RIN code is assigned by the ethanol producer to every gallon of fuel transferred to refiners. Refiners can opt to buy excess RINs or credits to help meet their renewable fuels standard. So instead of buying actual ethanol, they’re buying credits.

Miller says the excess use of RINs may be killing off ethanol demand. But in the past few months, the price of those RINs have risen from a few cents to 16 cents. An article by Ethanol Producer Magazine discusses RINs  at length in an interview with Clayton McMartin, president of Clean Fuels Clearinghouse. McMartin says a market is forming for RIN credits as some oil refiners scrambling to meet federal obligations are impacted by lower ethanol inventories caused by idling plants and the general demise of the industry.

So, if you’re an ethanol producer, it seems like there is money to be made selling off these RIN credits to the highest bidder.

Considering the high RIN prices, oil refiner Valero, which recently bought five of VeraSun’s ethanol plants at bargain basement prices, struck a darn good deal.

Biofuels producer Pacific Ethanol also announced last month it was out of money, defaulted on $250 million of loans and would file for bankruptcy protection if it can not find additional financing or renegotiate by the end of April.

If Pacific Ethanol follows Aventine’s path of first letting its CFO resign, then bankruptcy is right around the corner. In the case of Pacific Ethanol, the company fired its CFO Joseph Hansen last week as part of the company’s effort to downsizing its finance and accounting, according to its Securities and Exchange Commission filing. Hansen was hired more than a year ago to fix the Sacramento-based company’s accounting problems.