Pacific Ethanol's Short-Lived Reprieve
Kevin Kelleher - Big Green
For a few days there, things were starting to look up for Pacific Ethanol (PEIX).
Corn costs are surging. Demand is slack. And biofuels are being blamed for everything from toxic sludge to movie-ticket inflation. Pacific Ethanol, which recently suspended plans to build a new California plant, saw its stock drop 64 percent so far this year until it reported its first quarter earnings last week.
Excluding a one-time charge (related to an interest-rate hedge, which saw a decline in fair value), Pacific Ethanol posted a profit of 6 cents a share - a lot better than the 9-cent loss analysts had forecast. The company also hinted at a new plan to raise badly needed capital. CFO Joe Hansen explained:
We recently entered into a forbearance agreement with Comerica whereby our credit limit was reduced from $25 million to $17.5 million as a result of non-compliance with certain financial covenants… This coupled with elevated commodity prices has increased our need for working capital. To solve this problem, we are seeking to secure additional working capital credit lines and equity, part of which is expected to include $5 million in a near term capital infusion as to which negotiations are ongoing.
The forbearance plan - similar to those sought by mortgage owners in default - meant Pacific Ethanol would be raising capital just after a strong quarter. The company was shy on how it would get the money, but the answer came a few days later: Pacific Ethanol would sell $34.25 in new stock and warrants.
The move would indeed raise the needed capital and more, but it would substantially dilute existing investors’ share in the company. The news caused PEIX to drop 20 percent in one day. It’s since lost 36 percent of the value it had immediately after its first-quarter earnings report.
The episode suggests that the pain facing corn-ethanol companies has yet to subside. Pacific Ethanol may be eking out profits in a tough market, but it needs capital to keep it steaming forward. And that is creating a new set of concerns for investors.
Europe Debating Stricter Car Emissions
Irina Haltsonen - Policy
Car makers are facing newer and stricter emissions regulations all over the world. In Europe, the debate over proposals to curb carbon dioxide emissions for new cars is getting fiercer. This week six Greenpeace activist dressed up as Flintstones characters were arrested in Brussels, Belgium, as they were protesting about the influence of the car industry on the proposals. The European Parliament started debating legislation concerning CO2 emissions from cars on Wednesday. A vote on the legislation is coming up in the fall.
The activists, who claim that the car industry’s thinking is in “the stone age,” stopped at the car manufacturers’ lobby group, ACEA, and gave them copies of a Greenpeace report about the impact of car industry on climate change. On their way to the European Parliament, they were stopped by the police, but later released without charge, Greenpeace reports.
Most recently the European Parliament has proposed to cut average carbon emissions from new cars to almost half their current level by 2020, reports the Financial Times. Under proposed legislation the average new car sold in the EU could only emit 95g of carbon per kilometer, down from the current 160g/km regulation.
The makers of Europe’s larger cars, notably Volkswagen, BMW and Mercedes, have been lobbying for a size-based emissions regulation scheme to encourage bigger but lighter cars. Meanwhile, Fiat CEO Sergio Marchionne has spoken out against this weight-rated system, saying it penalizes the little guy. Still, the new proposal is very ambitious. Currently, only the likes of Daimler’s tiny Smart, which emits 88g/km, can meet the tough new proposed regulations.
In the U.S., California continues its own battle to enforce regulations for tougher emissions standards on cars. Yesterday it came out that the White House played a “pivotal” role in the EPA’s decision to deny California a waiver to enforce its own regulations. California has been trying to force car makers to abide by a state law, which would require a 30 percent reduction of emissions by 2016, and is currently embroiled in an investigation and a lawsuit with the EPA.
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