Up in Smoke Selling the Ashes of German Pellets

Insolvent German Pellets has attracted several bidders, Handelsblatt has learned. Workers might keep their jobs, but thousands of investors have little chance of getting their money back.
German Pellets at work in Texas.

Creditors of bankrupt German Pellets, a maker of wood products used in heating, have decided the company should be sold as a total package rather than in pieces.

While a package sale could help employees keep their jobs, investors would have only a remote chance of seeing their money someday.

The decision came after a secret Hamburg meeting between representatives of the creditors and bankruptcy administrator Bettina Schmudde, of the law firm White & Case.

At the meeting, Ms. Schmudde told creditors that several domestic and international investors had made binding takeover offers. She didn’t identify the bidders or give details about their offers.

Experts say that the combustible material produced from wood scraps is of high quality, but the market is unfavorable because of lower oil prices and the approach of spring

But Handelsblatt has learned from financial and industrial sources that several bidders want to acquire German Pellets in its entirety, including its three largest plants in Wismar, Herbrechtingen and Ettenheim. Even the money-losing factory in Torgau might be saved, the sources said.

The favored bidder is wood processor J. Rettenmaier & Sons in the state of Baden-Württemberg, according to the sources. The company already contracts the manufacture animal hygiene wood products at the plant in Wismar. Rettenmaier management could not be reached for a statement.

German Pellets, which is headquartered in Wismar and has production sites in the United States, filed for bankruptcy on February 10. As many as 17,000 investors are now seeking millions.

They loaned the mid-sized company a total of €270 million, or about $305 million, through bonds and profit-sharing rights. They made another €550 million available to U.S. pellet-producing factories, which are indirectly linked to German Pellets.

Bids for German Pellets are said to barely exceed €20 million. Experts say the combustible material produced from wood scraps is of high quality, but the market is unfavorable because of lower oil prices and the approach of spring.

Regardless of who comes out on top, it is clear that money paid by a buyer would mostly be passed on to banks and suppliers, which, in return for providing credit, demanded access to real estate or machinery in case their loans were not paid back.

People familiar with the factory in Wismar report that adhesive labels that read “Property of Commerzbank” or “Property of Metropolitan” have been distributed throughout the premises and attached to machines.

Sources say that under the leadership of company founder Peter Leibold, leased equipment was also used as collateral for loans. Mr. Leibold has been unavailable for comment.

The list of creditors is long. According to a paper issued by Los Angeles-based investment bank Houlihan Lokey, banks alone lent the German Pellets group more than €50 million. A large creditor in Vienna, the factoring financier MGC Commodities, has registered claims amounting to €59 million. There are countless suppliers with unpaid invoices as well.


German Pellets Liabilities


Trust in the company seems to have collapsed completely at the end, forcing it to use more and more parts of Mr. Leibold's empire as collateral. This means there will less money left over most of the creditors, especially bondholders. And the insolvency procedure must be paid for by proceeds from any sale.

The bankruptcy administrator is expected to complete the sales process by May 1. At that time, general insolvency will begin and the Federal Labor Office will cease paying wages. It will then be Ms. Schmudde’s responsibility to find new sources for satisfying at least some of the creditors’ claims.

It is an open question, for example, as to what will become of a coal-fired power plant in Belgium, which Mr. Leibold bought this year shortly before the end.

The plant, which has since closed, cost nearly €20 million, according to information obtained by the German business weekly WirtschaftsWoche,  a sister publication. The Belgian government promised annual subsidies totaling €250 million if it is refitted for pellets and continued operations. Once the ownership issue has been clarified, the plant could possibly find a new investor.

There are more questions regarding operations pursued in the United States by company founder Mr. Leibold. A study by ivenstment bank Houlihan Lokey said more than €100 million in investors’ money was channeled into those operations.

Large manufacturing plants were built in Louisiana and Texas under the umbrella of German Pellets USA Holding, which belongs entirely to German Pellets. There, too, the ownership structure is unclear, as is the question of whether the insolvency administrator could squeeze out more money there for investors.

Given the present state of affairs, most investors must resign themselves to an almost total loss. Their bonds are currently valued at only 2 percent of what was originally paid.


Andreas Dörnfelder is a Handelsblatt reporter. Gertrud Hussla covers finance and pension planning for Handelsblatt in the Düsseldorf bureau. To contact the authors: [email protected] and [email protected]