VeraSun, One of USA’s Largest Ethanol Producers, Files Chapter 11

According to a VeraSun press release, a “series of events” had shrunk its liquidity, impairing its ability to invest in production facilities and operate its business. “A dramatic spike in corn costs,” partly due to its hedging arrangements and “worsening capital market conditions and a tightening of trade credit resulted in severe constraints on the company’s liquidity position,” the release said.

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The statement went on to say that the Sioux Falls, S.D.-based company said it planned to maintain operations while the company and 24 of its subsidiaries reorganize. In addition it expects to reach a deal with lenders on additional financing to fund its operations before a hearing Monday. It also expects to get court approval at this hearing to keep paying employees without interruption.

In 2006, VeraSun shares made a stunning debut at more than $30 a share, helping fund the company’s rapid expansion. Its 16 production facilities are scheduled to have production capacity of 1.64 billion gallons of ethanol by the end of this year. VeraSun’s shares lost nearly 16% Friday to close at $0.48.

Unprecedented moves in corn prices and a global credit tightening proved the company’s undoing. A run-up in corn prices earlier this year, in part due to increased demand from ethanol makers, squeezed margins for VeraSun and other ethanol producers.

Corn prices have tumbled to $4.01 a bushel Friday from a record of around $8 a bushel in June. But because of hedges it entered in July, when corn prices were still high, VeraSun wasn’t able to take advantage of this swift descent. Its corn costs averaged between $6.75 and $7 a bushel for the third quarter, it estimated in September, triggering a 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,” VeraSun Chief Executive Don Endres said in the statement.

Source: Market Watch

Photo courtesy of Danial Y Go via Creative Commons Lisence

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