VeraSun files for Chapter 11 bankruptcy protection

By Bryan Sims | November 03, 2008
Web exclusive posted Nov. 5, 2008 at 3:37 p.m. CST

The recent retreat in corn prices caught one of the nation's largest ethanol producers offguard. VeraSun Energy Corp. and its 24 subsidiaries filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court in the District of Delaware on Oct. 31, allowing it to enhance liquidity while the company reorganizes.

According to the company, the filing was "precipitated by a series of events that led to a contraction in VeraSun's liquidity, impairing its ability to operate its business and invest in new and expanding ethanol facilities." In a statement, the company said it "suffered significant losses in its third quarter financial statement," citing that a dramatic spike in corn prices attributed to its corn procurement and hedging arrangements resulted in "unfavorable operating margins."

Corn prices have declined precipitously to around $4 per bushel, down from a record of approximately $8 per bushel in June. Consequently, because of hedges it entered in July, when corn prices were still high, VeraSun wasn't able to take advantage of the swift decent. Its corn costs averaged between $6.75 and $7 per bushel for the third quarter, it estimated in September, triggering a significant loss for the period.

"Today's filing allows VeraSun to address its short-term liquidity constraints as we navigate historically challenging market conditions while we focus on restructuring to address the company's long-term future," said Don Endres, chief executive officer of VeraSun. "We appreciate the loyalty of our employees, customers and suppliers during this challenging time."

During the Chapter 11 proceedings, VeraSun intends to resume normal operations. The company has taken steps to ensure continued supply of product to its customers and to fulfill all customer obligations. VeraSun expected to reach a deal with lenders on additional financing to fund its operations before its hearing on Nov. 3. It also expected to get court approval at the hearing to keep paying employees without interruption.

Bankruptcy, though widely expected, caps a swift reversal of fortune for the seven-year old ethanol producer, which has been one of the key beneficiaries of U.S. policies designed to encourage the use and production of ethanol.

As investors clamored for stock plays on alternative energy similar to the dot-com boom of the early 1990s, VeraSun's shares debuted at more than $30 per share in 2006, which boosted the company's rapid expansion in the ethanol sector. Its 16 production facilities are scheduled to have a production capacity of approximately 1.64 billion gallons by the end of 2008.