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eNews from Monday, February 23, 2009

Bankruptcy of Wisconsin's Renew Energy LLC Leaves Trail of Uneasy Creditors

Milwaukee Journal Sentinel, The -- Feb. 21 -- On its face, Renew Energy LLC's bankruptcy is about a Jefferson County company walloped by near-frozen credit markets and a collapse of ethanol prices that has driven producers' profit margins to almost zero.

But the ethanol plant operator's woes also are rippling across the state. They've forced a large grain dealer into involuntary receivership; prompted farmers to question whether that dealer will honor its contracts; and landed some of Wisconsin's biggest players in the rough-and-tumble ethanol industry in a heap of financial trouble.

Renew, which runs what it calls the world's largest ethanol plant near Jefferson, filed for protection from creditors in late January in federal court in Madison.

The firm has defaulted on a $100 million construction loan from Bankers Bank, two loans from the state Transportation Department and a $38 million revenue bond issued by the Town of Aztalan.

Topping the list of unsecured creditors is Green Lake County grain dealer Olsen's Mill Inc. Renew owes more than $20 million to Olsen's Mill, which was forced into receivership in late January by BNP Parabas, a multinational French bank, because of more than $58 million of obligations.

Parabas accuses Olsen's Mill of concealing in regular reports to the bank the extent of Renew's past-due accounts and intentionally shifting value from Olsen's to Renew, which share some owners. Olsen's has yet to respond to Parabas' allegations.

A Green Lake County circuit judge overseeing the case has appointed Milwaukee attorney Michael Polsky as interim receiver and ordered Paul Olsen to resign as the company's top officer.

Olsen was chief executive not only of Olsen's Mill but also of Renew and of Utica Energy, an Oshkosh ethanol plant that is Renew's second-biggest unsecured creditor at $3.9 million. He owns the Olsen empire with brothers David and Sen. Luther Olsen (R-Ripon). The state senator said last year, amid controversy over his sponsorship of a bill that would have increased incentives for making and using ethanol, that he owns one-third of Olsen's Mill, a company founded by the Olsens' grandfather.

Right vision, bad timing

With 11 locations around the state, Olsen's Mill markets, dries and stores grain for farmers and sells them seeds, fertilizer and other agricultural products. Olsen's Mill is the exclusive supplier of corn to the Renew and Utica ethanol plants.

As creditors line up at Olsen's Mill and Renew, the firms' supporters say they had the right vision but the wrong timing.

Driving Paul Olsen and others is a desire to create a more finished product for the farmers they grew up with and have long done business with so they don't have to ship half the corn out of the state as a low-value commodity, said Bob Welch, a Renew Energy spokesman and friend of the Olsen family.

"You look at things and say, 'We're sort of making money, here's an opportunity to value-add ourselves instead of shipping it downriver,' " said Welch, a former state senator who runs a public affairs business in Madison.

In their quest, however, the Olsens have often tangled with local communities and the state. They originally planned to put their Utica Energy plant in Algoma near one of their grain storage facilities but lost a battle with zoning officials. After another fight in the Town of Utica, near Oshkosh, they won the right to put the plant there.

In November 2005, and again in June, Utica Energy agreed to pay around $75,000 to settle air pollution violations. In July the state stopped Olsen Brothers Enterprises from further construction of a grain and corn elevator in the Town of Belmont, alleging the project violated laws enacted to control erosion and runoff.

Many of the tussles involve "glorified paperwork violations" and are part of the growing pains many new industries experience, Welch said.

"If you look at how we've treated the environment as an industry as a whole, what we have done is we have created a very green industry here," Welch said.

In September 2007, Olsen's Mill pleaded guilty to a federal charge of providing false paperwork to a state agricultural agent in a case involving its delivery of a lower-quality corn to an Illinois customer.

'Everybody's been paid'

All of the farmers Olsen does business with appear to be getting paid, said Jeremy McPherson, director of the bureau of business trade practices at the state Department of Agriculture, Trade and Consumer Protection.

"When I talk to corn farmers, there's concern and questions, but everybody's been paid up to date, and we expect that will continue," agreed Bob Oleson, executive director of the Wisconsin Corn Growers Association.

Olsen's Mill has also paid its assessments to the state's Agricultural Producers Security Fund, which covers farmers in the event of grain dealer defaults, McPherson said. As for Renew, its main lender, Bankers Bank, is working closely with the company to determine whether it can continue as a going concern, said Laxson Boyd, a principal with Wadsworth Whitestar Consultants and adviser to the bank.

The most recently constructed ethanol plants are the most stressed because they're grappling with the heaviest debt loads, said John Petty, executive director of the Wisconsin Agri-Service Association, which represents the state's grain dealers. He says he believes the current mess will take out capacity -- while hitting investors and bankers the hardest -- and put the economics of ethanol back in line with federal renewable fuel requirements.

Others aren't as optimistic.

"Given the way the commodity markets work, the fundamental economics of corn-based ethanol will continue to be very challenging," Boyd said.

Author: Kathleen Gallagher, Milwaukee Journal Sentinel

To see more of the Milwaukee Journal Sentinel, or to subscribe to the newspaper, go to Copyright (c) 2009, Milwaukee Journal Sentinel Distributed by McClatchy-Tribune Information Services. For reprints, email, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

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