NEW YORK (Thomson Financial) - Shares of Aventine Renewable Energy Holdings
Inc. plunged to a record low on heavy volume Friday after the company warned it
may face a liquidity problem because of its exposure to auction-rate securities
(ARS), delaying the construction of new plants.
Shares of Aventine tumbled as much as 20% to an all-time low of $6.79 in
intraday trading. The stock last traded down 19.1% at $6.88 on volume of 2.4
million shares. The 30-day average trading volume is 809,195 shares.
The sell-off also pulled other ethanol stocks sharply lower.
Aventine said late Thursday it incurred a pretax loss of about $1.5 million
related to the liquidation of $84.3 million auction-rate securities this year.
The company said it still owns $127.2 million such securities, which have
experienced "multiple failed auctions."
Chief Financial Officer Ajay Sabherwal said in a conference call Friday that
currently there is a very limited market for these securities and further
liquidations at this time, if possible, "would likely be at a significant
discount."
However, "should we not be able to liquidate a substantial portion of the
remaining portfolio of these ARS securities on a timely basis and on acceptable
terms, we will have to either attempt to raise additional funds or slow down the
construction of the new facilities or both," Sabherwal said. "In addition,
delays in construction of our new facilities could expose us to material
penalties."
Aventine is currently building new facilities in Aurora, Neb. and Mt.
Vernon, Ind. and expects these plants to ramp up ethanol production beginning in
the first quarter of 2009.
BMO Capital Markets downgraded Aventine to market perform from outperform
Friday and cut its price target to $8 from $14.
"To be clear, we do not expect [Aventine] to run into liquidity issues, but
there may very well be financial repercussions related to auction rate
securities -- losses related to sale of securities or penalties related to
construction delays," Kenneth Zaslow wrote to clients.
Elsewhere in the sector, shares of Verasun Energy Corp. tumbled 5.8% to
$9.04, U.S. BioEnergy Corp. slumped 6.2% to $7.13, and MGP Ingredients Inc.
declined 6.9% to $7.18.
Biofuel Energy Corp. fell 2.5% to $5.85 and Pacific Ethanol Inc. slipped
1.9% to $5.75. Verenium Corp. declined 1.4% to $3.49.
Ron Oster, an analyst at Broadpoint Capital Inc., said that based on the
most recent available quarterly data, it appears that the Aventine announcement
is "an isolated/company specific issue" that is not expected to impact many
other ethanol stocks.
Wanfeng Zhou
wz/wz/vj
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