Pacific Ethanol Inc. announced a deal today that's designed to erase $34.7 million in debt while handing nearly 10 percent of its stock to a new investor.
The arrangement could represent a step toward pulling the Sacramento ethanol producer's operating subsidiaries out of Chapter 11 bankruptcy.
The investor, Socius CG II Ltd. of Los Angeles, purchased some $5 million of debt held by original lender Lyles United LLC.
Then Socius made a deal with Pacific to cancel the debt in return for the equity stake.
The deal reduces the parent company's debt, said Pacific Chief Executive Neil Koehler. That could help the company lift its production plants out of Chapter 11 bankruptcy, where they've sat since last May.
Eventually, Socius could buy out the rest of Lyles' debt, he said.
Pacific halted production at three of its four plants as prices collapsed and cash ran short. It has since re-started one plant, although its two California facilities, in Stockton and Madera, remain mothballed.
"The ethanol industry has changed positively recently," said Terren Peizer, a financier who heads Socius.
Pacific shares fell to $1.98, down 7 cents, in Nasdaq trading.