Enviva is the world’s largest producer of utility-grade wood pellets. Its customers, primarily in Europe and Japan, burn pellets to produce heat and electricity which is (questionably) considered renewable energy. To fund an incessant capex binge and lavish dividend payments over the years, Enviva has ridden the ESG wave and raised volumes of debt and equity capital. In recent times, Enviva has faced allegations of greenwashing and financial misdeeds. Enviva’s stock has fallen 98% over the past year and its bonds have been trading at distressed levels for a while.

Enviva’s Q3 23 results were disastrous and it is now on the verge of a debt covenant breach and a going concern qualification. What pushed Enviva over the brink was an ill-fated and poorly understood bet — a pellet sale-repurchase deal with an existing customer — on pellet spot prices continuing to rise beyond historic highs reached in Q4 22.

In this timely report, we dissect Enviva’s financials to establish that the company remains deeply unprofitable. Its management regularly relies on generous add-backs to gross margins and EBITDA to paint a rosy picture, and guidance has become increasingly unreliable. We also deconstruct the sale-repurchase deal, illustrate the magnitude of the bad bet, and hypothesize as to the motive behind the deal.

We then discuss Enviva’s cap stack and debt covenants and conclude whether the company will burn through all its liquidity by Q3 24. Finally, we look at what Enviva could be worth in a liquidation — the secured debt appears to be covered but the unsecured debt is likely to be meaningfully impaired.