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Rentech Hid Facility Problems, Overstated Pre-Tax Gains Securities Class Action

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Wood Pellets and Rentech Logo

Rentech, Inc. made false or misleading statements in its public statements, the complaint for this securities case alleges, in violation of the Securities Exchange Act of 1934. The statements involve details about plants, repairs, customer agreements, and other things that would have altered the mix of information available to investors, according to the complaint.

The class for this action is all persons or entities who acquired Rentech’s common stock between March 15, 2016 and April 6, 2017.

Rentech, a renewable energy company, makes and processes wood fiber to make wood pellets and wood chips via its wood-chipping business, Fulghum Fibres.

The company operates two wood pellet facilities in Ontario, Canada, one in Wawa and the other in Atikokan. Wawa was expected to product 400,000 to 450,000 metric tons annually, and Atikokan up to 110,000 metric tons. However, Rentech discovered that both facilities required modifications to reach capacity. It completed some of these in 2015 and claimed the rest would be finished within 2016.

Rentech had a ten-year take-or-pay contract with a company called Drax, the complaint says, and incurred a $2.6 million penalty when it had to cancel orders in 2015. The company also had another large take-or-pay order with another company.

Also, some of its customers had agreements that allowed them an option to purchase the wood-chipping mills that made their products.

According to the complaint, the statements the company made during the class period did not provide sufficient detail in a number of areas:

First, the complaint claims that Wawa was “a stranded asset” in that the distance to its shipping port was approximately 684 miles. Since Wawa had by far the larger capacity, this added to the company’s problems in fulfilling orders.

Second, according to the complaint, the company had serious issues with the conveyor systems in both the Wawa and Atikokan facilities. These were design flaws that could not be fully addressed by the modifications, the complaint says, and they would continue to cause operational problems.

Third, the complaint claims that details of the Fulghum contracts were not disclosed—for example, whether the contracts included operating fees, the amount of profit per ton, and the recovery of capital invested.

Fourth, the complaint alleges that the pretax gain from the sale of Rentech Nitrogen was overstated because the company had material weaknesses in financial reporting.

On February 21, 2017, the company announced the ending of production at the Wawa facility and the reduction of operations at Atikokan. It also announced that a customer had chosen to exercise its option to buy two wood-chipping mills, creating a loss of income for the company. At this news, the company’s stock price plunged by more than 47%.

On April 4, 2017, the company filed a Form 8-K that admitted that some of its previous financial statements should no longer be relied upon. On April 6, it announced net asset impairment for its facility closings and that disclosure controls and procedures were not effective as of December 31, 2017. 

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