Moody’s downgrades US ethanol producer Aventine

28 February 2008 14:57  [Source: ICIS news]

TORONTO (ICIS news)--Moody’s Investors Service has cut its ratings for US ethanol producer Aventine and moved the credit outlook to "negative" after the company disclosed that securities worth about $127m (€84m) held as short-term investments were illiquid, it said on Thursday.

 

“The negative outlook reflects the uncertainty about Aventine's future profitability - given current commodity prices - and its liquidity as it spends heavily on new plant construction,” Moody's said.

 

Aventine was currently in an unattractive commodity pricing environment as elevated corn prices - recently exceeding $5/ bushel - and ethanol prices that have traded at a discount or a small premium to gasoline prices were resulting in slim margins for producers.

 

These factors were hitting margins despite favourable US federal legislation passed in December mandating increased ethanol usage in 2008 and beyond

 

“Continuation of current commodity prices could lead to meagre cashflows that would not contribute significantly to capital expenditure requirements or improve liquidity,” the analysts said.

 

Aventine’s cash balances could be exhausted during 2008 and the generally difficult liquidity environment could prevent the company from raising significant funds, they added.

 

Moody’s reduced Aventine’s speculative-grade liquidity rating to SGL-3, from SGL-1, and moved the ratings outlook to negative, while affirminig its B2 corporate family rating and B3 rating on its senior unsecured notes due 2017.

 

A deterioration in operating margins due to adverse movements in commodity prices or further levering of Aventine's balance sheet could put negative pressure on the rating, Moody’s added.

 

($1 = €0.66)

 

Bookmark Simon Robinson’s Big Biofuels Blog for some independent thinking on biofuels. For more on ethanol visit ICIS chemical intelligence

 

By: Stefan Baumgarten
+1 713 525 2653

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