Organization, Nature of Business, Basis of Presentation, Liquidity, and Going Concern Considerations

12 Months Ended

Dec. 31, 2012

Organization, Nature Of Business, and Liquidity Considerations [Abstract]

Organization Nature Of Business And Liquidity Considerations [Text Block]

1. Organization , Nature of Business, Basis of Presentation, Liquidity, and Going Concern Considerations

Organization and Nature of Business

BioFuel Energy Corp. (“we” or “the Company”) produces and sells ethanol and its related co-products, primarily distillers grain and corn oil. We have historically operated our two dry-mill ethanol production facilities located in Wood River, Nebraska and Fairmont, Minnesota. Each of these plants has an undenatured nameplate production capacity of approximately 110 million gallons per year (“Mmgy”). Our operations are subject to changes in commodity prices, specifically, the price of our main commodity input, corn, relative to the price of our main commodity product, ethanol, which is known in the industry as the “crush spread”. Drought conditions in the American Midwest significantly impacted the 2012 corn crop and caused a significant reduction in the corn yield. This led to an increase in the price of corn and a corresponding narrowing in the crush spread as ethanol prices did not rise sufficiently with rising corn prices, due to an oversupply of ethanol. As a result, in September 2012 the Company decided to idle its Fairmont facility until the crush spread improved. Due to continued narrow crush spreads, in February 2013 we reduced staffing at the Fairmont facility and expect the Fairmont facility to remain idle until the 2013 harvest season. In the event crush spreads narrow further, we may choose to curtail operations at our Wood River facility or idle the facility and cease operations altogether until such time as crush spreads improve.

We were incorporated as a Delaware corporation on April 11, 2006 to invest solely in BioFuel Energy, LLC (the “LLC”), a limited liability company organized on January 25, 2006 to build and operate ethanol production facilities in the Midwestern United States. The Company’s headquarters are located in Denver, Colorado. We are a holding company with no operations of our own, and are the sole managing member of the LLC, which is itself a holding company and indirectly owns all of our operating assets. As the sole managing member of the LLC, the Company operates and controls all of the business and affairs of the LLC and its subsidiaries. The Company’s ethanol plants are owned and operated by the operating subsidiaries of the LLC (the “Operating Subsidiaries”). Those Operating Subsidiaries are party to a Credit Agreement (the “Senior Debt Facility”) with a group of lenders, for which First National Bank of Omaha acts as Administrative Agent, and substantially all of the assets of the Operating Subsidiaries are pledged as collateral under the Senior Debt Facility. Neither the Company nor the LLC is a party, either as borrower or guarantor, under the Senior Debt Facility, and none of their respective assets, other than the LLC interests in the Operating Subsidiaries themselves, are pledged as collateral under the Senior Debt Facility. The aggregate book value of the assets of the LLC at December 31, 2012 and 2011 was $259.7 million and $309.2 million, respectively.

 We work closely with Cargill, one of the world’s leading agribusiness companies, with whom we have an extensive commercial relationship. At each of our plant locations, Cargill has a local grain origination presence and owns adjacent grain storage and handling facilities, which we lease from them. Cargill provides corn procurement services, markets the ethanol we produce and provides transportation logistics for our two plants under long-term contracts.

On June 15, 2012, the Company effected a reverse stock split with respect to all outstanding shares of common stock and Class B common stock at a ratio of one-for-twenty. The Company also split the number of authorized shares of common stock at a ratio of one-for-fourteen, thereby reducing the aggregate number of authorized common stock shares to 10,000,000, and also split the number of authorized shares of Class B common stock at a ratio of one-for-twenty, thereby reducing the aggregate number of authorized Class B common stock shares to 3,750,000. All share and per share information and all necessary par value equity adjustments have been retroactively restated in the financial statements to reflect the effect of this reverse stock split.

At December 31, 2012, the Company owned 87.3% of the LLC membership units with the remaining 12.7% owned by an individual and by certain investment funds affiliated with one of the original equity investors of the LLC. The Class B common shares of the Company are held by the same individuals and investment funds who held 795,479 membership units in the LLC as of December 31, 2012 that, together with the corresponding Class B shares, can be exchanged for newly issued shares of common stock of the Company on a one-for-one basis. The proportionate value of the LLC membership units held by individuals or entities other than the Company are recorded as noncontrolling interest on the consolidated balance sheets. Holders of shares of Class B common stock have no economic rights but are entitled to one vote for each share held. Shares of Class B common stock are retired upon exchange of the related membership units in the LLC. 

 Basis of Presentation, Liquidity, and Going Concern Considerations

 The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate our continuation as a going concern. Our financial results and cash flows are subject to wide and unpredictable fluctuations in the crush spread. The price of our main co-product, distillers grain, is likewise subject to wide, unpredictable fluctuations, typically in conjunction with changes in the price of corn. The prices of these commodities are volatile and beyond our control. As a result of the volatility of the prices for these and other items, our results fluctuate substantially and in ways that are largely beyond our control. As shown in the accompanying consolidated financial statements, the Company incurred a net loss of $46.3 million during the year ended December 31, 2012, due mostly to narrow commodity margins.

 Narrow commodity margins present a significant risk to our cash flows and liquidity. We have had, and continue to have, limited liquidity, with $9.3 million of cash and cash equivalents as of December 31, 2012, of which $8.6 million was held at the LLC and $0.7 million was held at the Operating Subsidiaries, which is subject to the lenders’ liens under the Senior Debt Facility. The Operating Subsidiaries have also relied upon extensions of payment terms by Cargill as an additional source of liquidity and working capital. As of December 31, 2012 the Operating Subsidiaries owed Cargill $9.0 million for accounts payable related to corn purchases. Pursuant to an arrangement with Cargill, the Operating Subsidiares have been permitted to extend corn payment terms beyond the $10.0 million contractual limit so long as the amounts Cargill owes the Operating Subsidiaries for ethanol exceed the accounts payable balance by an amount that is satisfactory to Cargill. This arrangement may be terminated at any time on little or no notice, in which case the Operating Subsidiaries would need to use cash on hand or other sources of liquidity, if available, to fund their operations.

Due to our limited and declining liquidity, our Board of Directors determined that, in order to preserve cash at the LLC, the Operating Subsidiaries would not make the regularly-scheduled payments of principal and interest that were due under the outstanding Senior Debt Facility on September 28, 2012, in an aggregate amount of $3.6 million. As a result, the Operating Subsidiaries received a Notice of Default from First National Bank of Omaha, as Administrative Agent for the lenders under the Senior Debt Facility. Since the initial default, the Operating Subsidiaries have not made any of the regularly-scheduled principal and interest payments, which through December 31, 2012 totaled $8.2 million. On November 5, 2012, the Operating Subsidiaries and the lenders under the Senior Debt Facility entered into a Forbearance Agreement whereby the lenders agreed to forbear from exercising their remedies until November 15, 2012. Although the Forbearance Agreement expired on November 15, 2012 and has not been extended, the Company continues to engage in active and continuing discussions with the lenders and their advisors.

In conjunction with our ongoing discussions with the lenders under the Senior Debt Facility, in March 2013 the Company engaged a financial adviser to assist it with an assessment of its strategic alternatives. These alternatives could include, but are not limited to, a sale of all or substantially all of the assets of the Operating Subsidiaries, which comprise substantially all of the assets of the Company other than cash on hand. The lenders under the Senior Debt Facility have indicated that they are willing to provide the Company with a grace period until July 30, 2013 to allow us to pursue one or more strategic alternatives. This grace period would be subject to the achievement of certain milestones, and could be extended at the sole discretion of the Administrative Agent under the Senior Debt Facility. The Company expects to enter into a formal agreement to reflect the foregoing as soon as reasonably practicable. In the event of a sale of one or both of our ethanol plants, the proceeds of such sale would first be applied to repay all or a portion of the outstanding indebtedness under the Senior Debt Facility. Residual proceeds after satisfying the senior indebtedness, if any, would accrue to the Company. Any such sale would also most likely require the consent of the lenders under the Senior Debt Facility.

The Company, on behalf of the Operating Subsidiaries, has also been engaged in separate discussions with the lenders under the Senior Debt Facility regarding a consensual resolution of the default. It is likely that any such agreement with the lenders will entail the transfer of all or substantially all of the assets of the Operating Subsidiaries in satisfaction of all of the outstanding indebtedness under the Senior Debt Facility. To that end, the Company’s Board of Directors has approved in principle our proceeding with such a transaction in the event the Company is unable to achieve an alternative transaction. We cannot assure you, however, that we will be able to reach agreement with our lenders with respect to any such transaction, or achieve any other transaction, which could also include a capital contribution by the Company of its cash on hand to the Operating Subsidiaries, additional loans, a long-term forbearance or restructuring under the Senior Debt Facility, some combination of the foregoing, or another transaction in a form yet to be determined.

Although the Company intends to diligently explore and pursue any number of strategic alternatives, we cannot assure you that it will be able to do so on terms acceptable to the Company or to the lenders under the Senior Debt Facility, if at all. In addition, in either the case of a transfer of the assets of the Operating Subsidiaries to the lenders under the Senior Debt Facility or a sale of one or both of our plants, as discussed above, we cannot assure you as to what value, if any, may be derived for shareholders of the Company from such transfer or sale.

As of December 31, 2012, the Operating Subsidiaries had $170.5 million of principal indebtedness outstanding under the Senior Debt Facility. The entire amount outstanding under the Senior Debt Facility has been classified as a current liability in the December 31, 2012 consolidated balance sheet. If the Company is unable to reach an agreement with the lenders under the Senior Debt Facility, and if the lenders successfully exercise their remedies under the Senior Debt Facility, the Company may be unable to continue as a going concern, and could be forced to seek relief from creditors through a filing under the U.S. Bankruptcy Code.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the default of our Operating Subsidiaries under the Senior Debt Facility, the cessation of operations at the Fairmont ethanol facility, our limited liquidity and the continued narrow crush spread all raise substantial doubt about the Company’s ability to do so. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.