Late 2022 Purchases Put Enviva In A Bind

“Our future profitability and liquidity are expected to be negatively impacted by the following matters which have resulted in substantial doubt about the company’s ability to continue as a growing concern,” states Enviva in its 10-Q filing with the Securities and Exchange Commission upon releasing its third quarter earnings report, which noted that Enviva incurred net losses of $258 million for the nine months added ended September 30, 2023, following $168 million net losses in 2022.

The world’s largest producer of industrial wood pellets, operating 10 facilities in the Southern U.S., specifically points to agreements in late 2022 for it to purchase 1.8 million metric tons from a client, believing that the global wood pellet market was substantially short for the foreseeable future and these purchases would provide an opportunity to flexibly capture margin in future periods. However, market prices for wood pellets during 2023 have been well below the elevated spot market prices of fourth quarter 2022 and lower than the prices at which Enviva agreed to purchase these volumes. As a result, the anticipated loss on the sale of the purchased volumes is expected to negatively impact the company’s cash flow and liquidity through 2025, unless there’s a significant near-term increase in wood pellet market pricing. Sales of existing long-term contracts still won’t cover the loss on the purchased volumes.

Enviva says it is in negotiation with the existing customer to restructure or renegotiate the terms of the 2022 purchase transactions. It has also engaged with an advisory firm for a comprehensive review of alternatives to Enviva’s capital structure and debt maturities.

Furthermore, in its 10-Q filing, Enviva expresses concern that if it falls out of compliance with the covenants and restrictions of its senior secured credit facility, the lenders could declare default with all debt immediately due, and it’s possible Enviva would be unable to meet those obligations. Enviva says it has fully drawn $675 million under its senior secured credit facility, which matures in June 2007.

Enviva meanwhile announced that chief financial officer Glenn Nunziata is now the interim CEO, while former CEO and president Thomas Meth continues as president. Meth comments, “I am focused on engaging with customers to ensure that our contracts reflect the value our product provides customers and returning to a business model centered on predictable, profitable take-or-pay contracts.”