Investor Alert

Sept. 28, 2010, 2:40 p.m. EDT

Hedge funds lend $19 million to BioFuel Energy

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By Matt Andrejczak, MarketWatch

SAN FRANCISCO (MarketWatch) — Struggling ethanol maker BioFuel Energy Corp. is getting a short-term $19.4 million loan from hedge funds Third Point and Greenlight Capital, its two largest shareholders.

The loan carries a 12.4% interest rate and must be repaid March 24, 2011, according to recent Securities and Exchange Commission filings. The bridge loan is secured by an equity stake in a BioFuel subsidiary.

BioFuel /zigman2/quotes/209013335/composite BIOF -3.95%   paid Third Point and Greenlight a 4% fee for funding the loan.

/zigman2/quotes/209013335/composite BIOF 0.17, -0.0070, -3.95%

Combined, the hedge funds own 69% of BioFuel’s outstanding common shares. Under the terms of the bridge loan, Third Point and Greenlight could own an even bigger chunk of BioFuel if the loan isn’t repaid in time.

BioFuel aims to repay the loan through a share rights offering, in which existing shareholders will get the right to purchase up to 4 million shares of Series A convertible preferred stock at $10 each. The company must file offering papers with the SEC no later than Oct. 18.

Third Point is run by Daniel Loeb; Greenlight by David Einhorn.

In the past, Loeb has been one of the most outspoken activist hedge fund mangers. Einhorn was famous for making a public warning about Lehman Bros. before its collapse.

BioFuel has been a poor investment since its June 2007 initial public offering. The shares hit an all-time high of $11.33 on July 3, 2007. The stock sunk to a low of 25 cents a share on April 22, 2009.

Once flooded with investment dollars and high hopes, the ethanol market took a precarious turn in the spring of 2009. Producers filed for bankruptcy and dozens of plants were shut down after too much capacity was built and people drove less due to the severe economic downturn.

By the end of last year, Archer Daniels Midland /zigman2/quotes/203479136/composite ADM +0.17%  , Valero /zigman2/quotes/200735463/composite VLO -1.03%  and privately-held Poet LLC controlled 31% of the ethanol produced in the U.S.

For its part, BioFuel was slow to finish construction of its two plants in Nebraska and Minnesota, which combined can produce 230 gallons of ethanol a year. By the time the plants were up and running in June 2008, corn -- the main ingredient to make ethanol -- had spiked to record highs.

Losses on bad corn hedges forced it to restructure debt deals with agribusiness giant Cargill -- the buyer of all the ethanol BioFuel produces.

BioFuel has lost $57 million since 2007. Its debt was $212 million at the end of last year.

In early afternoon trading Tuesday, BioFuel shares fell 6%, or 14 cents, to $2.08.

US : U.S.: OTC
$ 0.17
-0.0070 -3.95%
Volume: 111,516
May 20, 2022 3:32p
P/E Ratio
Dividend Yield
Market Cap
$47.39 million
Rev. per Employee
$ 84.00
+0.14 +0.17%
Volume: 4.85M
May 20, 2022 4:00p
P/E Ratio
Dividend Yield
Market Cap
$47.27 billion
Rev. per Employee
$ 122.98
-1.28 -1.03%
Volume: 5.10M
May 20, 2022 4:00p
P/E Ratio
Dividend Yield
Market Cap
$50.19 billion
Rev. per Employee

Matt Andrejczak is a reporter for MarketWatch in San Francisco.

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