Investors likely losers in GO Ethanol sale

LIMA - The company most likely to end up owning Greater Ohio Ethanol is also the major funder in its construction.

Paladin Capital Group, the Washington, D.C.-based equity company and leading bidder on the bankrupt GO Ethanol plant, is the same company that put together $145 million in debt and equity financing to launch construction of the plant just two years ago.

Paladin was one of just two companies bidding on the $150 million ethanol plant. They were named prevailing bidder in documents filed Monday in Northern District of Ohio Bankruptcy Court. That means, assuming the bid is approved by the court during a hearing today, the company will, in a sense, buy back the plant for $5.75 million.

Calls and e-mails to Paladin Managing Director Mark Maloney were not returned Tuesday, so it's not known what Paladin plans to do with the plant. Typically, equity companies provide or help raise the money to launch projects such as the Greater Ohio Ethanol plant. The company's portfolio includes a Southern California biodiesel plant and investments in Brazilian ethanol projects as well as the Lima-based manufacturer Accubuilt Inc.

One thing that's fairly certain is that very few of the plant's investors or the companies they owe money to for supplies and services will see any money out of the sale. During an earlier court hearing, plant President Greg Kruger said he expected the plant could sell for as little as $18 million and even at that, only the lead investor, SunTrust, was likely to see anything in return. At close to $12 million less than the projected low, investors have little expectation of seeing their money again. There are more than 200 local investors and vendors listed in the bankruptcy filing. That includes the city of Lima's Utilities Department, listed among the 20 largest unsecured claims with a $190,546 bill.

"Based upon that stunningly low sale price, I do not think we'll see anything," said Lima Law Director Tony Geiger.

The lower-than-expected sale price is likely the result of multiple problems. As far back as November, Kruger acknowledged that the market was in decline. The ethanol business took off in recent years and with it, the number of new plants built. But by last fall, more than a dozen ethanol plants - financed and built when corn costs were low and credit readily available - had closed or filed for bankruptcy.

Lima's plant is arguably worth even less than those other plants because it suffers from design flaws that have crippled production and inflated the cost of operating.

"Right now, the economics of running an ethanol plant, even without design problems, they're ... making zero profit," Kruger said during a 2008 hearing. "We have the compounded difficulty. The market itself is upside down and we also have mechanical problems."