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(Now known as Alto Ingredients, Inc. – NASDAQ: ALTO)
Situation
- Pacific Ethanol (now known as Alto Ingredients) is a publicly-traded producer of specialty alcohols, with operations in Illinois and the West Coast. Revenue in 2019 was $1.4 Billion.
- Pre-COVID, Pacific Ethanol was already experiencing significant margin compression related to its core product, ethanol.
- As COVID lockdowns expanded nationwide and gasoline demand crumbled, ethanol prices collapsed to the point where gross margins on ethanol production turned negative.
- Pacific Ethanol reported a Q1 2020 EBITDA loss of $12 million. Poor financial performance resulted in covenant violations with its secured lenders.
- SCP was engaged as Chief Restructuring Officer in March 2020, tasked with spearheading negotiations with secured lenders and developing a viable turnaround plan for the business.
SCP'S SOLUTION
- SCP immediately engaged in discussions with the Board and management to idle unprofitable plants – particularly on the West Coast – and to significantly reduce spend on personnel and trade in order to preserve liquidity.
- Simultaneously, SCP induced management to refocus operations on higher-margin products. A rapid operational shift enabled the company to significantly benefit from soaring demand for hand sanitizers.
- To alleviate concerns from secured lenders, SCP re-engineered Pacific Ethanol’s financial model to reflect a fundamental change in operations, demonstrating sufficient liquidity to begin paying off debt.
- Furthermore, in order to reflect the paradigm shift of Pacific Ethanol, the Board promoted the Chief Operating Officer to Chief Executive Officer and allowed the founder (focused on ethanol) to retire.
RESULTs
- Pacific Ethanol’s EBITDA jumped from negative $12 million in Q1 to positive $29 million in Q2 and positive $34 million in Q3 2020.
- In conjunction with its shift toward higher-quality alcohols, Pacific Ethanol began selling its ethanol-focused plants, using the proceeds to paydown debt.
- Strong operational and financial performance also allowed the company to tap equity markets, raising $75 million in Q4 2020.
- As a result, SCP was able to broker a debt restructuring deal with its secured lenders, which provided for a rapid reduction in loan balances and a waiver of all defaults. During 2020, Pacific Ethanol was able to reduce its loan balances from ~$245 million to ~$100 million.
- Pacific Ethanol was guiding toward being net term debt free by the end of 2020.