By Dietrich Knauth
NEW YORK, March 14 (Reuters) - Bankrupt wood pellet manufacturer Enviva Inc plans to renegotiate long-term biofuel supply agreements and resolve a $349 million contract dispute with German energy company RWE in bankruptcy, lawyers for the company said on Thursday.
Enviva attorney David Meyer said at a court hearing in Alexandria, Virginia, on Thursday that the company is building support for a deal that will cut $1 billion in debt and make its biofuel business more profitable in the long run. Those efforts will lead Enviva to terminate some contracts with energy customers who have "refused to engage" in price reductions, Meyer told U.S. Bankruptcy Judge Brian Kenney.
Enviva filed for bankruptcy protection on Tuesday, saying that it has struggled to maintain profitability due to increased costs for converting raw wood fiber into pellets that can be burned as biofuel by its energy customers. Enviva has long-term contracts with energy companies in the United Kingdom, the European Union, and Japan, and some of those contracts have locked in prices that are longer profitable for Enviva, the company said.
Enviva intends to finance is bankruptcy with a $500 million loan from its existing lender group.
In addition to its contract renegotiations, Enviva is working to resolve a dispute with RWE, a German energy company that says it is owed $349 million from Enviva's ill-fated effort to lock in future pricing for wood pellets that Enviva intended to sell to other customers.
Enviva agreed in 2022 to buy large quantities of raw material from RWE, but it terminated the deal early after material prices fell far below the amount it had agreed to pay, according to court documents.
RWE's attorney, Lisa Laukitis, said that Enviva seems to be trying to wipe out the $349 million contract claim in exchange for a "minimal" equity stake in Enviva. RWE intends to "scrutinize" hundreds of millions of dollars in dividends that the company paid to shareholders before it went bankrupt, as a potential source of repayment for creditors, Laukitis said.
Laukitis and Meyer both told Kenney that their clients would to try to resolve the dispute.
Headquartered in Bethesda, Maryland, Enviva is the world's largest producer of wood pellet biofuel, with 1,200 employees and 10 wood-pellet production plants located in Virginia, North Carolina, South Carolina, Georgia, Florida, and Mississippi, according to its court filings.
The case is In re Enviva Inc., U.S. Bankruptcy Court for the Eastern District of Virginia, No. 24-10453.
For Enviva: David Meyer of Vinson & Elkins, among others
For RWE: Lisa Laukitis of Skadden, Arps, Slate, Meagher & Flom
Read more:
Euronext to launch wood pellet futures contract
RWE shares fall as German power giant cools share buyback hopes