BioFuel Resolves Hedging Loss Issues, Strikes Cargill Deal

By Jessica Resnick-Ault and Mara Lemos Stein
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)-- Ethanol producer BioFuel Energy Corp. (BIOF) struck a deal with key creditor Cargill Inc. late Wednesday, allowing BioFuel to continue to operate despite significant hedging losses.
Denver-based BioFuel incurred $70.6 million in hedging losses for the quarter ended Sept. 30. After corn prices hit a record high in June, many ethanol producers made risky bets in the corn market, which resulted in losses throughout the third quarter as corn prices declined.
While the agreement will allow BioFuel to continue to operate, the company expects to continue losing money, unless ethanol margins improve. "The company's ability to amortize debt or achieve profitability will depend upon improved industry margins," BioFuel said in its press release after the market closed Wednesday.
BioFuel and other ethanol companies have struggled recently after going public following U.S. legislation encouraging increased use of the corn-based fuel. Oversupply of the fuel and a slowdown in demand have squeezed producers in this volatile commodity business.
Following payments of an undisclosed sum, Cargill has agreed to accept an additional $11.4 million from BioFuel as total repayment for existing debt. BioFuel must pay an additional $20 million to two holders of its subordinated debt.
BioFuel has been unable to make timely payments to Cargill since August, and failed to meet a Sept. 30 deadline for paying interest on its subordinated debt to two other creditors.
The company and its creditors have come to an agreement in which the remaining amounts owed to Cargill and the debt holders will be paid back at 5% a year, effective Dec. 1.
Cargill has agreed to waive all interest through Nov. 30.
BioFuel shares closed up 7.5% to 43 cents in regular trading, and were down 7% to 40 cents after hours.
-By Jessica Resnick-Ault, Dow Jones Newswires; 201-938-4435; jessica.resnick-ault@dowjones.com; and Mara Lemos Stein, 201-938-2354; mara.lemos-stein@dowjones.com