Abengoa, a renewable energy company based in Spain that has received nearly $3 billion in loans and grants from the U.S. Department of Energy, appears to be teetering on the edge of solvency.
“The future of the company seems very black,” Carlos Ortega, a trader at Beka Finance Sociedad de Valores SA, told BloombergBusiness. “It has a tremendous amount of debt which no bank wants to refinance and now even its partners are backing out.”
On Wednesday, Abengoa officials sent stockholders and financial investors into a low-grade panic when they announced the company is filing for preliminary creditor protection, a step that could lead to the largest bankruptcy case in Spain’s history.
The move came after a Spanish investment firm backed out a plan to inject around €350 million ($372.85 million) into Abengoa, which has been criticized for expanding too fast and accumulating too much debt.
News quickly spread to financial markets on both sides of the Atlantic, with Abengoa’s bonds due in March plunging to a record low of 12 cents on the euro. In early trading Wednesday, Abengoa’s stock price on the NASDAQ exchange crashed by more than 50 percent.
Late Wednesday, Spain’s stock market announced it was removing Abengoa from its blue-chip index.
Employing 24,000 people worldwide, Abengoa sells renewable energy and its engineering and construction divisions have been busy on environmental and renewable energy projects in the U.S.
Abengoa has been a favorite of the Obama administration, with the Department of Energy showering the company and its subsidiaries with $2.9 billion in grants and loan guarantees to undertake solar projects in California and Arizona, as well as the construction of a cellulosic ethanol plant in Kansas.
Abengoa received a $1.2 billion loan guarantee from the U.S. government to develop the Mojave Solar Project in California, which went online last year.
In December 2010, the Department of Energy awarded Abengoa a $1.45 billion loan guarantee to finance the Solana solar plant in Arizona. The plant started commercial operations in October 2013.
Watchdog.org sent an email Wednesday morning to the Department of Energy to check the status of those loans and comment on what a potential Abengoa bankruptcy would mean. So far, we haven’t received a response.
“It’s the taxpayers who are on the hook in these kinds of deals,” said William Yeatman, senior fellow specializing in environmental policy and energy markets at Competitive Enterprise Institute and a vocal critic of the government’s loan program to benefit green businesses.
“It’s wholly predictable,” Yeatman said. “The precariousness of any industry whose business plan is completely based on favorable politics; that’s not a sound market plan.”
A $134.2 million loan guarantee from DOE was issued to Abengoa in 2011 for an ethanol plant in Hugoton, Kansas. Earlier this year, an executive at the plant told Watchdog.org the loan has been completely repaid.
The Kansas biofuel plant, which converts plant waste to ethanol, received a $97 million grant from DOE in 2007 during the administration of George W. Bush.
Abengoa’s financial health has been in question for months, with the company’s stock plummeting from $29.32 in September 2014 to less than $5 a share this fall.
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