VeraSun Energy Corp., the nation's second largest ethanol producer accounting for about 13 percent of U.S. capacity, said late Friday it is seeking Chapter 11 bankruptcy protection after skyrocketing corn costs and a deterioration in capital markets left the company short on cash.
VeraSun (VSE) said it was working with lenders and expected to reach an agreement on additional financing to fund normal operations before a court hearing scheduled for Monday. The company said it plans to resume operations during the Chapter 11 proceedings, and it doesn't expect to reduce raw material purchases.
"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," Don Endres, VeraSun's chief executive, said in a statement.
Tight capital
VeraSun said it had significant losses in the third quarter due to a "dramatic spike" in the cost of corn it turns into fuel. The company also said the capital markets and a tightening of trade credit placed "severe constraints" on its liquidity.
VeraSun, founded in 2001, went public in June 2006 amid perfect market conditions. Corn was cheap, gas cost a bundle and refiners were clamoring for more ethanol to use as a cleaner-burning alternative to the additive MTBE.
But skyrocketing corn costs began cutting into ethanol producers' profits, and many tried to use hedging to control costs. Hedging sets future prices for corn sellers, while helping buyers avoid the risk of volatile price swings by letting them lock in at a set cost.
After VeraSun locked into prices for its feedstock for the third quarter, corn went into a sharp decline from almost $8 per bushel to a low of less than $5 per bushel in mid-August.
After a mid-September announcement of an expected third-quarter loss of $63 million to $103 million, the Sioux Falls-based company tried to raise $20 million in a public offering. VeraSun canceled the offering after several companies expressed a "strategic interest," it said.
The nation's 177 ethanol plants have the capacity to produce about 10.9 billion gallons annually, according to the Renewable Fuels Association. VeraSun's 16 biorefineries can produce 1.4 billion of the renewable fuel each year, second only to privately held Poet LLC.
