VeraSun Energy files for bankruptcy
VeraSun bills itself as one of the nation's largest ethanol producers, but that high-flying label meant little when corn prices soared last summer. The company bought contract positions betting that corn prices would go even higher. Instead, corn prices plummeted, sticking VeraSun with huge losses, as much as $100 million.
In it's bankruptcy filing last Friday, VeraSun officials said the company is "essentially out of cash". VeraSun officials declined to comment for this story. After the company announced the big losses last September, it went looking for someone to buy the company. Ethanol industry analyst JinMing Liu, of Ardour Capital Investments, said there was little interest, given the company's financial difficulties.
"It has been dragging so long that its past the point that they could get a buyer," Liu said. "Only option to file bankruptcy."
The value of VeraSun's stock has fallen sharply as its financial problems mounted. Over the past year its stock price has fallen 98 percent before trading was suspended today because of the bankruptcy.
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In the company's Chapter 11 filing, VeraSun officials say they will continue to produce ethanol at 14 plants in eight states while the company attempts to reorganize. VeraSun has two facilities in southern Minnesota.
A plant in the town of Welcome is finished but sitting idle. Construction of a second facility in the town of Janesville should be completed by the end of the year. VeraSun officials have not said if or when the two plants will start production. The company's financial position was made even more precarious by the nation's credit crisis.
When VeraSun went shopping for an emergency loan, it couldn't find anyone willing to lend it the money. Similar problems are occuring all across the ethanol industry. Analyst JinMing Liu said profit margins are tight.
"The situation for ethanol production is very bad," Liu said.
Kansas-based Gateway Ethanol and Greater Ohio Ethanol also both filed for bankruptcy this fall. Glacial Lakes Energy in South Dakota has asked its investors for more money to keep the business running. Several other companies have canceled plans to build ethanol plants.
VeraSun has asked the court to let it borrow more than $200 million to meet it's day-to-day bills. Despite the credit crunch, VeraSun has managed to line up the loans from some existing lenders who have liens on the company's assets.
The problems in the ethanol industry are not a surprise to at least one group, oil companies. Charlie Drevna, president of the National Petrochemical and Refiners Association, said the same federal ethanol mandates which helped create the ethanol industry now may be causing its downfall.
"You know you live by the mandate, you suffer by the mandate, you suffer by economics," Drevna said.
Drevna said under the federal ethanol mandate, petroleum refiners are required to purchase set amounts of ethanol each year. In return, they get a per gallon tax credit. Drevna said he believes ethanol is an important part of the nation's fuel supply, but said the federal mandates lead the ethanol industry to expand too rapidly.
"The free market and the marketplace should dictate how much of that fuel is to be used when, where and how," Drevna said.
Some analysts say in part because of the federal mandates, there's 10 to 15 percent too much ethanol on the market right now. It's one factor holding down the price of ethanol, leading to lower profits. That makes it much tougher for companies in economic turmoil like VeraSun to survive.
