We’re pulling for Heron Lake: Minn. plant has 60 days to raise $4.5 million in working capital

By Holly Jessen
Bob Ferguson, CEO of Heron Lake BioEnergy, a 50 MMgy ethanol plant in Heron Lake, Minn., is confident the company will be able to raise $4.5 million in working capital. “We’ll either raise it from the internal membership or we’ll raise the money from another source,” he told EPM.

The company has 60 days to raise the money as part of a deal with its lender, AgStar Financial Services PAC, which it owes about $53.6 million. In exchange for extending the maturity date of a revolving line of credit loan, Heron Lake agreed to pay 50 percent of deferred interest and the other half was forgiven, Ferguson said. As of Oct. 31, Heron Lake had $3.5 million outstanding on its line of credit with AgStar.

This isn’t Heron Lake’s first 60-day extension—the company missed a deadline to raise the money by March 1 after an extension was granted the end of December. The company expected at that time to ask for another extension, it said in SEC filings.

Financial difficulties caused the company to violate certain covenants in its master loan agreement with AgStar. The violations occurred at the end of every quarter except one from Jan. 31, 2009, to Oct. 31 according to SEC filings. The end of the year AgStar and Heron Lake agreed on an amended agreement in which AgStar agreed not to declare the ethanol plant in default on the loan.

(read full article at http://ethanolproducer.com/articles/7588/minn-plant-has-60-days-to-raise-4-5-million-in-working-capital)

Our Take:
We’re pulling for Heron Lake. In 2008, Economist John Urbanchuk calculated that a 50 million-gallon-per-year, farmer-owned ethanol plant generates $84.02 million dollars in local spending each year–more than five million more dollars than the same plant when it is owned by absentee investors.

“The most significant difference in the economic impact of farmer-owned ethanol plants comes not from operations but from the distribution of profits,” Urbanchuk said, calculating that $22.5 million, or 44 cents per gallon of production, are available for distribution to shareholders. With the wild ride energy and commodity markets have taken in the past three years and continue to take, this figure no doubt varies, but the calculation represents a fair depiction of the potential for generating local economic activity. When local people in rural communities own the production, more of the profits get pumped into the local economy.

We can’t speak to the particulars of Heron Lake’s current business situation, but giving them the benefit of the doubt that this extension will give them enough room to get back on track, we hope they stay on line and remain in the hands of local owners.  The Urbanchuk study suggests that Heron Lake Bioenergy means a lot to Heron Lake, Minnesota. When the business becomes profitable, a significant amount of the profit distributions would go to main street businesses that supply food, clothing and services, to implement, seed and farm input dealers, auto dealers, banks and other businesses. Beyond the 30-some jobs directly supported by a 50 mmgy ethanol plant, Urbanchuk found that a farmer-owned plant supports 120 jobs in the local region.

When communities across the state like Hutchinson and Eagan are seeing business closures and job losses, even as the economy grows, we can’t take a single job for granted.

So we’re pulling for Heron Lake Bioenergy. It’s good for farmers. It’s good for Minnesota.

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