Attached files
| file | filename |
|---|---|
| 8-K - Otter Tail Ag Enterprises, LLC | v164400_8k.htm |
| EX-99.2 - Otter Tail Ag Enterprises, LLC | v164400_ex99-2.htm |
EXHIBIT
99.1
 |
24096
– 170th
Avenue
Fergus
Falls, MN 56537
Phone:
218 998-4301
Fax:
218 998-4302
ahicks@otaellc.com
www.ottertailethanol.com
|
October
30, 2009
Dear
Member,
We want
to share with you what is taking place with Otter Tail Ag Enterprises. We expect
that there will be news stories concerning the plant over the coming days, and
we want to share information first with you. As we begin, we want to thank you
for your support over the years, particularly during this recent period when our
industry has faced substantial challenge.
Negotiated
Chapter 11 Protection
Following
meetings and communication with our lenders, the board and management of Otter
Tail Ag Enterprises, LLC, have filed for court protection to implement a
strategy intended to create a viable company that can emerge from bankruptcy and
compete in current markets.
This
negotiated bankruptcy filing has been done with the approval of our senior
lenders. We believe that by filing for the protection afforded us under Chapter
11 of the U.S. Bankruptcy Code, we will be able to move forward with our senior
lenders to restructure our debt and raise the necessary capital to move forward
in today’s economy.
When we
held member meetings last February, the message was clear: reduce the company’s
debt. Since then we have worked with our senior lenders to accomplish this goal.
Unfortunately, this has not been possible to accomplish outside of
bankruptcy.
We cannot
emphasize strongly enough that this filing has been done with full disclosure
to, extensive negotiation with and the cooperation of our senior lenders, AgStar
Financial Services, which represents ten banks, and MMCDC New Markets Fund II.
The filing will allow the company the opportunity to restructure our
indebtedness and negotiate contracts to reflect present day market
values.
As you
are all aware, the company has experienced significant losses for the fiscal
year 2009. The root cause of this has been the price of both corn and ethanol.
Like many other ethanol plants, OTAE held long corn positions last fall and
short ethanol. The markets dropped dramatically across the board. OTAE was not
immune and subsequently experienced the effects firsthand.
Ethanol
Industry Bankruptcies
OTAE was
hit by what some in the ethanol industry have called “the imperfect storm.” The
rising price of corn, the falling price of gasoline and the national economic
crisis created a very difficult situation for many ethanol producers across the
country, especially newer plants like ours that were built in the last few
years.
According
to industry information, by February 2009, about 9 percent of all the ethanol
plants in the U.S. had filed for bankruptcy and some analysts believed the
numbers could reach as high as 20 percent. However, few have reportedly done
this with a pre-negotiated arrangement with their senior
lenders.
VeraSun,
one of the nation’s largest ethanol producers with 16 plants, filed Chapter 11
last fall without terms from its senior lenders. VeraSun’s failure to achieve a
lender agreement led to a forced sale of the company’s assets. The majority of
VeraSun’s ethanol plants were purchased by Valero, one of the U.S.’ largest
petroleum refiners. The remaining plants were purchased by other groups and
resold to a variety of buyers. VeraSun’s ethanol production facility in
Hankinson, North Dakota, sat idle for a year and was sold to Murphy Oil
Corporation, based in El Dorado, Ark. The Hankinson facility resumed operations
in mid October, as you have probably seen in the news.
We have
been working to avoid the kind of fire sale liquidation of plants that has been
happening around the country, where big outside companies come in and buy the
assets for pennies on the dollar. Our goal has been to find a way for the plant
to continue operating, to keep an opportunity for local ownership and
involvement of Minnesota-based companies. As we have heard from many of you,
this is in the best long-term interest of our members and the
community.
Local
Ownership
The
Fergus Falls ethanol plant is one of the single largest projects in our
community. During the original equity offering and subsequent financing two
years ago, Otter Tail Ag Enterprises enjoyed tremendous local and regional
support from the community of Fergus Falls, Fergus Falls Township, Otter Tail
County, the State of Minnesota and many surrounding communities.
We
strongly believe in the importance of keeping the ownership of OTAE local and
aligning with Minnesota-based companies. Ethanol production strengthens rural
economies, adding value to corn and employing people both directly and
indirectly. For instance, we have over 100 semis come in and out of the plant
daily. Also, local control will provide tremendous opportunities for the future.
There is no doubt that there is a strong future, for not only the ethanol
industry, but also other bio-energy enterprises. OTAE can serve as the anchor
for future development. Local ownership can help ensure that it happens here
rather than some other location chosen by a corporate management located in a
far-off place.
Our sole
focus is here, so in the future the profits will stay here.
The
Future of Ethanol
We
obviously believe in the industry, otherwise we would not have chosen the path
that allows the opportunity for local ownership.
Renewable
energy will remain the focus of the world. There is only so much fossil fuel
available. The world has a seemingly unquenchable appetite for energy,
especially with the emerging economies of China and India. We will all be
working to conserve energy in our businesses and personal lives, but
conservation will go only so far. Plus, our nation’s need for energy
independence gets magnified every day as we see the increased tension in the
Middle East. As a nation, we cannot afford to continue shipping our country’s
wealth to the Middle East. Bio-fuels are our best way to stop this dangerous
cycle.
Ethanol
production efficiency has improved considerably, and industry indications are
that it will continue to improve. The past year of economic pressure has caused
plants to seek alternatives, and these will start to be seen as the industry
strengthens over the next few years.
The
Renewable Fuel Standard (RFS) requires a continued use of renewable fuels in the
future with the use of conventional ethanol growing from 10.5 billion gallons in
2009 to 15 billion gallons by 2015. Through operational efficiency, the current
ethanol industry will have that capacity, and it is unlikely that lenders or
investment banks will finance new plants.
The
ethanol industry is presently experiencing a rally. Lower corn prices of late
summer and higher prices at the pump for gasoline have enabled most ethanol
producers to see some black ink for a welcome change, according to industry
analysts.
“Ethanol
has had wonderful times but has gone through a dry spot the last nine months,
but it has a rosy future,” said Bruce Dale of Michigan State University, a much
sought after expert on bio-energy research. “Ethanol is not going away, in fact
I think it will continue to grow.”
OTAE is
positioned for the future.
The
Strategy
OTAE has
operated throughout this year under considerable pressure. We feel we now have
the cornerstone of a plan that can allow the company to go forward. The
negotiated bankruptcy allows us the opportunity to restructure, reduce our
long-term debt and exit certain material contracts that are less favorable than
presently being offered.
The plan
will contain certain elements that the board and management believe will allow
OTAE to be successful in the future: reduction in long-term debt and an infusion
of new equity of approximately $12 million.
We will
be able to give you more information on the reorganization once the Disclosure
Statement is approved by the court. We will follow this with a variety of
meetings with you, the members, to explain the plan as well as answer questions
about the situation.
Conclusion
Again, as
we close, thank you for your past support. It has been a challenging year, but
we have tried our best to weather the storm. Now that we have taken this
necessary step to seek protection under Chapter 11, we can see the light at the
end of the tunnel. We plan to emerge from this pre-negotiated bankruptcy with
the tools necessary for future success.
We look
forward to talking with you about how you can be part of the future of
OTAE.
 |
 |
|
|
Anthony
Hicks
|
Gary
Thompson
|
|
|
Chief
Executive Officer
|
Board
Chairman
|
Except
for historical information contained herein, the statements in this information
release are forward-looking and made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve known and unknown risks and uncertainties which may cause the Company’s
actual results in future periods to differ materially from forecasted results.
Those risks include our expectations regarding future costs and revenues and
consumer demand for ethanol. These and other risks are more fully described in
the Company’s filings with the Securities and Exchange Commission. The
information contained in this release is accurate only as of the date issued.
Investors should not assume that the statements made in these documents remain
operative at a later time. Otter Tail Ag Enterprises, LLC undertakes no
obligation to update any information contained in this release.