Pacific Ethanol Inc., a leading producer and marketer of low-carbon renewable fuels in the U.S., recently announced that it has entered into a definitive agreement to acquire Illinois Corn Processing LLC (ICP) for $76 million, which includes $15 million in working capital. The transaction is expected to close in July 2017, subject to customary and other closing conditions.
ICP is a 90 million-gal.-per-year fuel and industrial alcohol manufacturing, storage and distribution facility adjacent to the Pacific Ethanol Pekin facility and is located on the Illinois River. ICP produces fuel-grade ethanol, beverage and industrial-grade alcohol, dried distillers grains (DDG) and corn oil. The facility has direct access to end markets via barge, rail and truck and will expand Pacific Ethanol’s domestic and international distribution channels.
The ICP acquisition will not only add 90 million gal. per year of production capacity to Pacific Ethanol but also will diversify fuel ethanol production with high-value beverage and industrial-grade alcohol, will expand export opportunities and will consolidate additional production in Pekin, Ill., with a combined 250 million gal. of production.
“The acquisition of ICP underscores our commitment to making strategic investments that expand and diversify our production platform, increase revenue, expand our marketing reach and improve our overall profitability,” Pacific Ethanol president and chief executive officer Neil Koehler said. “Two-thirds of ICP’s production is currently dedicated to producing high-quality, premium-priced alcohol products for the beverage and industrial markets. The consolidation of the ICP facility with our two Pekin, Illinois, plants integrates the Pekin site into a unique combination of technologies and products with a combined operating capacity of 250 million gal. per year. We expect the acquisition will yield approximately $3 million in annual cost savings over the first six to 12 months after closing, including economies of scale in purchasing power, managing grain supply and transportation costs for DDG and ethanol.”
Koehler said ICP has a history of consistent profitability operating at better-than-average industry margins. As such, the ICP acquisition is expected to be immediately accretive to earnings.
“To further enhance the plant’s value, we have identified several improvement initiatives,” Koehler added. “As we apply the best practices developed at our plants, we expect to improve yields, increase plant capacity utilization and continue to enhance ICP’s production processes through additional capital investments.”
Upon completion of this acquisition, Pacific Ethanol will have nine production facilities with a combined annual production capacity of 605 million gal., which Koehler said strengthens the company’s position as a leading producer and marketer of low-carbon renewable fuels in the U.S.
Pacific Ethanol will acquire ICP from Illinois Processing Holdings Inc., a wholly owned subsidiary of SEACOR Holdings Inc., and MGPI Processing Inc. for $76 million, subject to a customary working capital adjustment. Of the $76 million purchase price, $30 million will be paid in cash, and $46 million will be paid through the issuance of non-amortizing secured promissory notes due 18 months from closing. Pacific Ethanol intends to refinance these seller notes in the near future and is currently engaged in negotiations with CoBank to secure a long-term financing vehicle, which – if consummated – will have terms similar to the existing non-recourse loan at the company’s Pekin facilities.
“In conjunction with this transaction, we are also taking steps to further strengthen our balance sheet and increase our available liquidity. We have a commitment from Wells Fargo Bank to expand our borrowing capacity on our Kinergy line of credit facility from $85 million to $100 million, reduce the cost of the facility and extend the maturity date for an additional two years,” said Bryon McGregor, Pacific Ethanol chief financial officer. “We have also entered into an agreement to issue additional senior secured notes and amend our existing notes to increase the amount by approximately $14 million, bringing the note total to approximately $69 million, with no material changes to the existing terms.”