VeraSun secures interim financing
and Associated Press
VeraSun Energy Corp. announced this week that it has received authorization to secure $40 million in interim financing in order to pay its outstanding employee checks, pay its suppliers and keep grain stocks delivered to 14 operating plants.
VeraSun, the nation’s second largest ethanol manufacturer in the U.S., filed for chapter 11 protection Friday.
On Monday, judge Brendan Shannon, of the U.S. Bankruptcy Court, met to review VeraSun’s case and authorized the interim financing.
VeraSun issued a press release Monday stating that the company is also in negotiations with other lenders and expects to receive debtor-in-possession financing commitments totaling $250 million. These negotiations are being worked out with 2012 noteholders and AgStar lenders, the release said.
“The financing package approved (Monday) allows VeraSun to maintain operations and continue supplying its customers,” said Don Endres, VeraSun’s chief executive officer. “The relief granted by the court … 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.”
VeraSun and 24 of its subsidiaries filed Friday for relief under chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court for the District of Delaware in Wilmington.
VeraSun, which has 17 ethanol plants, including one in Fort Dodge, and produces about 13 percent of the total U.S. capacity, said it plans to resume operations during the Chapter 11 proceedings, and it doesn’t expect to reduce raw material purchases.
“I don’t expect this to have a ripple effect at our plant in Webster County,” said David Fierke, Fort Dodge city manager. “This is one of their newest and most modern plants that they have.”
In 2007, VeraSun received a $1 million tax incentive from the state in order to develop the technology to extract corn oil from the ethanol byproduct, distillers dried grain. That oil was expected to be sold to a biodiesel refinery.
The plant said the new process would create 14 new jobs, paying an average of $16.60 per hour at the plant. It would also represent a $30 million investment in processing machinery. The company also received $200,000 from the state’s Value Added Agricultural Products and Processes Financial Assistance Program to build a 1,300-ton-a-day corn oil extraction facility in Fort Dodge. Half of the funds were to be repaid within five years on a low-interest loan. The other half would be forgiven if VeraSun created the 14 jobs.
To date, that facility has not been built.
After news of the possible Chapter 11 filing was released Tuesday, VeraSun’s stocks fell from over $1 to 73-cents and to $.49 on Wednesday. According to msn.com, the stock saw a modest eight-cent climb to $.57 at the end of trading Thursday, only to close at $.48 Friday. Last December, the stock was trading at $17.
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.
The Brookings, S.D. based company, 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.
Will delay Minnesota plant’s start-up
VeraSun Energy Corporation announced Tuesday that it is indefinitely delaying the startup of its 110 million-gallon per year ethanol biorefinery in Janesville, Minn. VeraSun will continue operations at its 14 facilities across an eight-state region.
Construction on the Janesville facility is nearly completed and the plant was scheduled to begin operations prior to the end of the year.
Construction began in January 2007 and ownership of the plant moved under VeraSun on April 1, following its merger with US BioEnergy. Most of the 53 employees will be furloughed immediately.
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