Kior Inc., Biofuel Company, Files Bankruptcy, Plans Sale

Biofuel producer Kior Inc. filed for bankruptcy protection in Delaware with a plan to sell its assets to affiliates of billionaire backer Vinod Khosla if no better offer emerges.

Guggenheim Securities LLC, a company hired by Pasadena, Texas-based Kior, has solicited more than 165 potential buyers and the company will continue to market its assets for sale, according to documents filed in U.S. Bankruptcy Court in Wilmington. While more than 20 parties expressed interest, the only bid came from senior lenders and Pasadena Investments LLC, which agreed to convert $16 million of senior secured debt into new equity, according to the filings.

“The debtor intends to reorganize its business or sell all of its assets so that it can continue its core research and development activities,” Christopher Artzer, Kior’s interim chief financial officer, said in court papers.

Kior opened the first U.S. commercial-scale cellulosic biofuel plant in 2012 in Columbus, Mississippi, converting wood waste and other non-food crops into gasoline and diesel. The site never reached full capacity and production was halted in January so the company could adjust its manufacturing process.

Idled Plant

The plant has since been idled and decommissioned to minimize costs. Plant operator Kior Columbus Inc. wasn’t included in the bankruptcy filing.

The company listed consolidated assets of $58.3 million and debt of $261.3 million as of June 30 in Chapter 11 documents filed yesterday. It owes about $77 million to Alberta Investment Management Corp. and about $159 million to senior lenders owned and controlled by Khosla, the co-founder of Sun Microsystems Inc.

Kior’s failures “reveal the technical and economic complications cleantech companies have faced when attempting to scale fuel production to meet commercial market demands,” Marlo Dorsey, a spokeswoman for the Mississippi Development Authority, said in an e-mailed statement.

In the fourth quarter, Kior projected its production cost of cellulosic fuel would be $6.72 a gallon, according to Alejandro Zamorano Cadavid, an analyst at Bloomberg New Energy Finance in New York. But the fuel was selling for only $2.76 a gallon because of its low quality, he said in an e-mail.

“It therefore had to shut down the plant in Mississippi to work on improving its production costs and reduce operating costs,” Cadavid said.

Money Owed

Kior had said in an August regulatory filing that it wouldn’t be able to fund operations or meet obligations past the end of September without additional funding.

The company said in July that it may sell itself after missing a debt payment of $1.88 million to Mississippi, which in 2010 lent the company $75 million for the plant in Columbus. The state, which still was owed $69.4 million, agreed to a forbearance period as Kior hired Guggenheim to explore its options.

“My office has been working closely with the attorney general and state auditor’s offices on this matter, and we are going to exercise every legal action possible to recover the money owed to the Mississippi taxpayers,” Governor Phil Bryant, a Republican, said today in an e-mailed statement.

Kior reported a second-quarter net loss of $24.4 million, or 22 cents a share, and has had losses of $629.3 million since it was formed in 2007, according to court documents. Kior’s total revenue over those seven years is about $2.25 million.

‘Not Unusual’

“Producing fuel at a large loss is not unusual for next-generation biofuels companies,” Cadavid said in a March 27 report. “However, running at a loss for extended periods of time makes the provision of debt and equity from investors and strategic partners essential.”

Kior plans to borrow as much as $15 million from an affiliate of Khosla to help fund operations as it restructures, according to court papers. The company said its business won’t be interrupted and obligations to vendors, suppliers and workers will be fulfilled.

Kior closed at 2 cents today in New York and has tumbled more than 99 percent since its 2011 initial public offering at $15.

The case is In re Kior Inc., 14-bk-12514, U.S. Bankruptcy Court, District of Delaware (Wilmington).

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