VeraSun receives interim financing

By Bryan Sims | November 03, 2008
Web exclusive posted Nov. 5, 2008 at 4:47 p.m. CST

Four days after it voluntarily filed Chapter 11 bankruptcy protection with the U.S. Bankruptcy Court in the District of Delaware, Brookings, S.D.-based ethanol producer VeraSun Energy Corp. received commitments for up to $215 million in debtor-in-possession (DIP) financing from undisclosed holders of VeraSun's 9 and seven-eighths percent senior secured notes due 2012 and groups of lenders led by AgStar Financial Services.

During the hearing, the U.S. Bankruptcy Court entered an interim order allowing VeraSun and its affiliates to borrow up to $40 million from those DIP facilities and authorized it to use cash collateral enabling the company to operate while continuing to restructure its balance sheet. VeraSun is also in negotiations with its other lenders and expects to receive, when combined with commitments received from the 2012 noteholders and AgStar lenders, aggregate DIP financing commitments totaling $250 million.

AgStar led a group of 16 other lenders in providing the interim financing. According to AgStar, over the past three years its finance group collectively financed the U.S. BioEnergy ethanol plants, which were acquired by VeraSun through a merger earlier this year. Potential AgStar losses from this situation are not expected to be material and any losses sustained should not impact AgStar's overall financial soundness, the company stated in a news release.

AgStar said that it believes that while the ethanol industry has been experiencing short-term volatility, the industry outlook will improve over time. It assured its clients and stockholders that AgStar is financially sound and their business relationship will not be negatively affected by the VeraSun bankruptcy.
Judge Brendan L. Shannon of the U.S. Bankruptcy Court also granted VeraSun's emergency request to pay outstanding employee checks and suppliers for post-petition goods and services, as well as up to $20 million for goods delivered on or after Oct. 11 and for other emergency relief. The Bankruptcy Court is expected to conduct a hearing on Nov. 5 to rule on the remaining relief requested by VeraSun in its "first day" motions.

"The financing package approved today (Nov. 3) allows VeraSun to maintain operations and continue supplying its customers," said Don Endres, VeraSun chief executive officer. "The reliefs granted by the court today will allow us to focus on our operations and, at the same time, provide VeraSun with the liquidity and ability to continue operations, which means producing ethanol and distillers' grains, paying suppliers and satisfying customer needs for product."

Meanwhile, VeraSun has indefinitely delayed the start-up of its 110 MMgy ethanol plant under construction in Janesville, Minn., citing that the secured lender of the plant has not provided the necessary financing to continue construction and start-up activities. Efforts to secure financing for the Janesville project were underway, according to VeraSun. The company said it will continue operations at its 14 ethanol plants in production across an eight-state region.

Construction on the Janesville ethanol plant is nearly complete and had a scheduled target start-up date for sometime late this year. Construction began in January 2007 and ownership of the plant moved under VeraSun on April 1 following its merger with then rival U.S. BioEnergy Corp. Most of the 53 employees would be laid off immediately, according to VeraSun.