Problems for world’s largest wood pellet maker

Friday 16 Feb 2024

Enviva faces insolvency after missing US$24.4M bond payment, reporting significant losses, poor bets on pellet prices; interim CEO explains market prices have not risen as expected after company's purchase of 1.8 million tonnes of pellets in 2022.

After reporting big losses in the fall, the Maryland-based company missed a US$24.4 million bond payment this month, helping drive its stock price to new lows. After peaking at nearly US$88 a share in April 2022 , the company’s stock closed at 36 cents recently.

The company reported a net loss of US$85.2 million in the third quarter of last year, despite selling 14% more pellets than during the same quarter a year earlier. Enviva transforms trees and scrap wood from the Southeastern United States into cylindrical pellets about as big around as a pencil that it ships to Europe and Asia to be burned for heat and electricity.

Company officials cite several factors for the losses, including higher interest costs and charges related to shutting down equipment at a plant in Southampton, Virginia . But what has pushed the company to the brink of insolvency, they say, is some poor bets on the price of wood pellets that it made in late 2022. The company agreed to purchase 1.8 million metric tons of pellets at prices above what it had been getting up to that point, on the assumption that prices would rise and it could sell the pellets at a profit on the spot market.

That didn’t happen, Glenn Nunziata , interim chief executive officer, said during third quarter earnings call in November. “Spot market prices for wood pellets this year have not evolved in the way we anticipated,” Nunziata said. “And that weakness in the spot market caused us to significantly miss our expectations for the third quarter as well as materially reduce our expectations for the fourth quarter of this year.”

The company’s third-quarter report said it was taking several steps to try to right itself and pay its creditors, including attempting to renegotiate contracts with customers and hiring outside lawyers, financial advisers and management consultants. But, the report said, the events of the previous year “raise substantial doubts regarding the company’s ability to continue as a going concern.”

Update: An update this week reports that Enviva is preparing to file for bankruptcy within days after a bad bet on future prices of the commodity triggered nine-figure losses. Read more. Further coverage this week here.

Source: Charlotte Observer, WSJ, starnewsonline

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