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Enviva nears bankruptcy amid wood pellet pricing misstep

MARYLAND (From news reports) -- Enviva, the leading exporter of wood pellets in the United States, is on the brink of filing for Chapter 11 bankruptcy following a significant misjudgment in future commodity prices, which led to substantial financial losses. Maryland-based company might proceed with the bankruptcy filing by the end of this week, pending the expiration of a 30-day grace period due to a missed $24 million interest payment to bondholders, according to reports.

The company's stock has plummeted, closing at just under 45 cents a share on Tuesday, marking a 99% decline over the past year. This downturn followed a period of relative success during the pandemic and the European energy crisis last year. Enviva's foray into speculative purchasing of wood pellets to sell at a profit backfired disastrously, leaving the company with a severe mismatch in asset valuation. A November securities filing revealed that Enviva faced a potential loss of $139.4 million on 800,000 metric tons of wood pellets, valued significantly lower on the open market than the purchase price.

Further exacerbating the situation, Enviva forecasted an additional loss of approximately $140 million over the next two years from future pellet deliveries, casting doubt on the company's ongoing viability. Despite marketing its product as a sustainable alternative to fossil fuels, the combination of declining revenue, widening net losses, and a critical strategic error has pushed Enviva to the edge of financial insolvency. This comes amid strong demand for pellets among European and Asian power plants that burn wood instead of coal. Japan increased its wood pellet imports to historically high levels last year.

Bondholders have reportedly offered financing for the bankruptcy process, hinting at possible negotiations to extend the current grace period. However, with the grace period's impending conclusion and mounting financial challenges, Enviva's future hangs in the balance.

Founded in 2010 with backing from energy-focused private equity firm Riverstone, which holds a significant stake in the company, Enviva expanded rapidly to become a major player in the wood pellet industry. The company operates 10 plants across the southern United States and six marine terminals, but its recent financial turmoil underscores the risks inherent in commodity-based industries and the volatile nature of speculative trading strategies.

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