VeraSun Files Chapter 11
V85 maker seeks to enhance liquidity while it reorganizes; production to continue
SIOUX FALLS, S.D. -- Ethanol producer VeraSun Energy Corp. announced that it and 24 of its subsidiaries have filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware to enhance liquidity while they reorganize. VeraSun markets E85, a blend of 85% ethanol and 15% gasoline for use in flexible-fuel vehicles (FFVs), directly to fuel retailers under the VE85 brand.
The filing was precipitated by a series of events that led to a contraction in VeraSun's liquidity, impairing its ability to operate [image-nocss] its business and invest in production facilities. The company suffered significant losses in third-quarter 2008 from a dramatic spike in its corn costs, reflecting in part costs attributable to its corn procurement and hedging arrangements, and historically unfavorable margins.
Beginning in the third quarter, worsening capital market conditions and a tightening of trade credit resulted in severe constraints on the company's liquidity position. Faced with these constraints, VeraSun and 24 of its subsidiaries filed their Chapter 11 petitions to facilitate access to additional liquidity while they reorganize to take better advantage of VeraSun's position as one of the nation's largest producers of ethanol.
During the bankruptcy proceedings, VeraSun plans to resume normal operations. It has taken steps to ensure continued supply of product to its customers and to fulfill all customer obligations. In that regard, VeraSun said it was working closely with its lenders and expected to reach an agreement for additional committed financing to provide adequate liquidity to fund operations in the normal course.
The company said that it does not expect that it will scale back its purchases of raw materials, and corn and other suppliers will continue to be paid in full for all goods and services furnished after the filing date as required by the Bankruptcy Code. The company has also sought authority from the court to pay for goods delivered to it on or after Oct. 11, 2008.
VeraSun has also requested the court's approval to continue to pay employees in the ordinary course without interruption, and it said that expected the request to be granted.
"[The] 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 CEO said. "We appreciate the loyalty of our employees, customers and suppliers during this challenging time."
VeraSun, Sioux Falls, S.D., is a leading producer and marketer of ethanol, E85 and distillers grains. Founded in 2001, the company has a fleet of 16 production facilities in eight states, of which one is still under construction. VeraSun is scheduled to have an annual production capacity of approximately 1.64 billion gallons of ethanol and more than five million tons of distillers grains by the end of 2008.