NLC Energy Denmark files for bankruptcy protection

Last week, it was reported that local biogas company NLC Energy Denmark LLC has recently filed for Chapter 11 bankruptcy protection. According to documents filed on August 16 in the US Bankruptcy Court for the Eastern District of Wisconsin, the New Denmark-based firm is hoping to restructure roughly $76 million dollars in secured debt against assets valued at $10.3 to $17.7 million. The filing also states the facility has recently been operating at a loss of approximately $1 million a month and has "drastically underperformed projections" for methane production. To learn more, we combed through the court documents and reached out to NLC last week.

Located on County Highway R in the Town of New Denmark, the facility that would eventually become NLC Energy Denmark was first established in 2008 as NEW Organic Digestion LLC, which produced biomethane from food waste and manure to be used for electricity. In 2016, a joint venture was formed with NLC Energy, and the business was expanded. Problems soon followed, and the Denmark facility was shut down entirely in 2019 due to storage capacity issues. In August 2020, NLC Energy gained full control and ownership of the operation and resumed production. 

Today, the company claims to run a "robust, healthy, multi-feedstock, food-waste anaerobic digestion process". Their website also boasts their flagship facility has a record of no reportable safety violations. The digester now collects and processes manure from 12 area farms, and the firm owns their own decant station with access to an interstate pipeline. The facility is also the first anaerobic digester in the world to produce certified beverage-grade liquid CO2 and food-grade dry ice. It is reported to have 32 employees.

Anaerobic digestion is a series of processes in which microorganisms break down biodegradable material in the absence of oxygen. Digesters are able to convert livestock manure and food waste into biogas, which can be used for heat, electricity and to fuel vehicles, and digestate, which can be used for livestock bedding and fertilizer. According to the Wisconsin Public Service Commission, the state currently has more than 300 methane digesters with about 50 of these being on dairy farms. Most of these are found at wastewater treatment plants, landfills and food manufacturers as well as industrial sites. The Denmark digester was one of the first facilities to be approved to accept input from multiple dairies at a single facility.

By pumping biogas into an interstate pipeline, the Denmark facility can send methane nearly anywhere in the country. As it turns out, much of the financial incentive for producing manure-based biogas comes from the State of California's Low Carbon Fuel Standard which provides incentives for companies that reduce greenhouse gas emissions. Much of NLC Energy Denmark's recent struggles stem from an arrangement they made with the University of California nine years ago.

In 2016, the Regents of the University of California signed a twenty-year agreement to purchase methane from the NEW Organic Digester. When an expansion on the facility was delayed, the firm began to fall behind on debt obligations by 2020. On top of this, the contract's production projections proved to be unattainable. In 2022, NLC attempted to renegotiate an increase in the gas purchase price with the university, but no agreement was reached. Without the price increase, the facility continued to operate at a loss, and its debt continued to rise. NLC's facilities in Riceville, Iowa, and Sioux City, Nebraska, are also reportedly operating at a loss.

In February of this year, NLC Energy Denmark approached their ten senior secured lenders with the possibility of filing Chapter 11 to put the company "on a path toward profitability". Under the plan, the senior secured lenders will retain their security interests while accepting a significant debt reduction. Any trade creditors with claims under $250,000 will be paid in full. The plan also includes provisions for the company to work with the senior secured lenders to "actively market" the Denmark facility within two months of its confirmation with a goal of "maximizing value". However, there is no required timeline for completing the sale which will allow management to take "as long as necessary to obtain a fair price". The firm will continue operating during marketing and will maintain its 32 employees.

We reached out to NLC Energy Denmark to get their response to this development. A representative from the company told us the Chapter 11 filing was a "strategic decision" made "collectively by ownership and management". They claim it was initiated for "financial restructuring with the goal of assuring the sustainability and continued success in improving plant productivity and maintaining Denmark's exemplary safety and compliance record". They continued, "Long-term, this was the best decision to support our strategic plan for growth and our strong community partnerships," and pointed out, "NLCE is compliant and current with all existing contracts and is not in default with any of the many important counterparties we work with daily." They stressed the "financial restructuring" is mainly meant to provide relief from "two foundational agreements specific to capitalization and a legacy long-term offtake agreement that we were unsuccessful in renegotiating". They closed by telling us, "In all aspects going forward, we expect to be 'business as usual'."

Before the Chapter 11 filing is approved, NLC Energy Denmark must first secure the votes of their creditors. Information has been sent out to those affected with ballot acceptance deadlines set for September 12. They have requested a confirmation hearing for September 30. The Denmark News will keep readers updated on any further developments in this story.