VeraSun Files for Chapter 11
01 November 2008
VeraSun Energy Corporation, one of the nation’s largest corn ethanol producers, has filed voluntary petitions for relief under chapter 11 of the US Bankruptcy Code to enhance liquidity while they reorganize.
VeraSun hedged its corn purchases during the price spike in the summer when cost per bushel had soared to nearly $8. The collapse of corn pricing (December corn is currently just above $4 per bushel) left the company stuck with contracts at the much higher price. 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.
Squeezed by these factors, VeraSun and its 24 subsidiaries filed 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 chapter 11 proceedings, VeraSun plans to resume normal operations. The company is acting to ensure continued supply of product to its customers and to fulfill all customer obligations. In that regard, VeraSun is working closely with its lenders and expects to reach an agreement before the “first-day” hearing on Monday for additional committed financing to provide adequate liquidity to fund operations in the normal course.
VeraSun does not anticipate scaling 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.
VeraSun has also requested the bankruptcy court’s approval to continue to pay employees in the ordinary course without interruption, and expects the request to be granted as part of the court’s “first day” orders.
Founded in 2001, VeraSun has a fleet of 16 production facilities in eight states, of which one is still under construction. VeraSun Energy is scheduled to have an annual production capacity of approximately 1.64 billion gallons of ethanol and more than 5 million tons of distillers grains by the end of 2008.
VeraSun also markets E85, a blend of 85% ethanol and 15% gasoline for use in Flexible Fuel Vehicles (FFVs), directly to fuel retailers under the brand VE85.
This is kind of a shame, but also VeraSun's own fault for reliance on corn. I don't know what their balance sheet looks like, but they should have been spending mass amounts of money on efficiency & research and development of the refinement of ethanol from different feedstocks. ...ejj...
Posted by: ejj | 01 November 2008 at 08:41 AM
Another victim of the speculation bubble?
Many others may very well follow.
Anti-speculation regulations may be required to avoid future bubbles.
Even the best systems have to be adjusted from time to time.
Posted by: HarveyD | 01 November 2008 at 09:57 AM
Overall speculation is a natural and healthy part of the economy. The creation of the railroads, internet, etc are all results of speculative bubbles. The downturn after the overbuild is painful but the benefits seem to always outweigh the cost.
Posted by: Mike Z. | 01 November 2008 at 11:47 AM
There is always war in criminal gangs. Ex: motard, mafia, mob, theifs, drug dealers, politicians, journalists-paparazzi, tv-reality, corporate artists, so it's not surprising to see these subsidized business dissappear after having stolen money from taxpayers. It's a fight between politicians and big oil and these new businessmans.
Posted by: a.b | 01 November 2008 at 11:48 AM
Mike Z:
The great Far West Cowboy days had to go to make room for a more law abiding society.
The unregulated speculators and all powerful lobbies days will also have to go sooner or latter to stabize the country and the world financial system.
The world may find better ways sooner than we think.
Going deeper and deeper in debt is not a sustainable solution. Nationalizing bad debts at the rate of a many $ trillions does not solve the problem. Pay back day may be delayed but is unavoidable.
Economies that thrive on multi-layer speculation may eventually fall the hardest when a large enough bubble burst.
Posted by: HarveyD | 01 November 2008 at 02:59 PM
The article is hardly from a neutral source. It only slightly rephrases VeraSuns press release.
They didn't hedge well. First they got hurt when corn prices spiked upward and now they are busted because they fell.
You haven't hedged when you contract to buy corn at $8 sometime in the future. You have just made a bet.
A hedge requires an offset. This would be one way:
If VeraSun had bought puts to sell the same amount of corn at $8 in the future then they would have been protected.
Those puts would have been insurance. And like all insurance they would have paid some price for them.
I think there will be more to this story. It looks to me as if VeraSun comes out fine while its creditors get shafted.
Posted by: K | 01 November 2008 at 04:55 PM
The company speculated with more money than they had. Instead of making money off of making ethanol they tried to beat the financial wizzards at their own game and lost. The financial wizzards were able to take money from the company as well as from the public. Ethanol is a fraud on the taxpayers anyway and it is too bad for the taxpayers that the company did not fail badly enough to stop operation. ..HG..
Posted by: Henry Gibson | 10 November 2008 at 01:19 PM
Just googled this:
Published: Tuesday, January 6, 2009 11:39 PM CST
CENTRAL CITY — Omaha attorney Joe Hawbaker didn’t paint a pretty picture Tuesday for farmers left with unpaid grain contracts with bankrupt ethanol giant VeraSun Energy Corp.
“You’re at the bottom of the list of people to get paid during a bankruptcy,” Hawbaker told about 65 farmers gathered at an informational meeting in Central City sponsored by the U.S. Department of Agriculture.
--
So both taxpayers and farmers got screwed. What a shame.
Posted by: Jim Greene | 19 January 2009 at 08:57 AM