Process Management

News 312 views last update:6 Aug 2012

US ethanol maker in bad weather

VeraSun Energy, US second largest ethanol producer has secured enough money to keep it from closing its doors, the company revealed, but more is needed.

VeraSun filed paperwork in a Delaware federal bankruptcy court Monday that further detailed the company's precarious financial situation and outlined its plan for the months ahead.

Yesterday, the New York Stock Exchange halted trading on VeraSun's stock as the company's common shares dropped 53% to 23 cents a share.

This decision came in response to VeraSun's Chapter 11 bankruptcy protection filing late Friday.

To continue operations, lawyers for VeraSun said in the court filings, the company preliminarily has tapped at least $25 million in interim financing from existing creditors and is seeking up to $190 million in working capital while it reorganizes.

Analysts are unsure of whether VeraSun's troubles represent an ominous sign for the ethanol industry.

Monday's events marked the latest setbacks for VeraSun, which had been on a fast growth track since going public only two years ago. In December, VeraSun's stock traded at a 52-week high of about $17 a share.

The company, founded in 2001, was posting quarterly profits and building plants across the Midwest to keep up with the growing demand for ethanol.

But in the past few months, escalating corn prices began cutting into ethanol producers' profits. Many turned to hedging in a bid to control costs.

Disastrous hedging
Under hedging, ethanol producers banked on meeting future corn production needs by buying the product immediately and locking in prices to avoid volatile price swings in the market.

For VeraSun, that hedging proved disastrous because corn prices began falling after it had contracts locking the company in at the higher prices.

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.

VeraSun owes more than 1,000 creditors $1.9 billion; it has assets of $3.45 billion.

The ethanol producer owns 16 plants in eight states that can produce 1.64 billion gallons of ethanol a year, or about 15% of the domestic supply.

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