VeraSun Energy files Chapter 11 due to lack of liquidity

VeraSun Energy Corporation, one of the nation's largest ethanol producers, has disclosed that the company and 24 of its subsidiaries have filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code to enhance liquidity while they reorganize.

The filing was precipitated by a series of events that led to a contraction in VeraSun's liquidity, impairing its ability to operate its business and invest in production facilities. The company suffered significant losses in the third quarter of 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.

During the Chapter 11 proceedings, VeraSun plans to resume normal operations. The company has taken steps 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 for additional committed financing to provide adequate liquidity to fund operations in the normal course.

The company expects that it will not scale back its purchases of raw materials and corn, and that 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 also requested the bankruptcy court's approval to continue to pay employees in the ordinary course without interruption.

VeraSun has received commitments for up to $215 million in debtor in possession (DIP) financing from certain holders of VeraSun's 9 7/8 percent senior secured notes due 2012 and groups of lenders led by AgStar Financial Services. As a result, the United States Bankruptcy Court entered an interim order allowing VeraSun and its affiliates to borrow up to $40 million from these DIP facilities and authorized the use of cash collateral to enable VeraSun to operate its business. VeraSun is also in negotiations with its other lenders and expects to receive, when combined with commitments received from the 2012 noteholders and AgStar lenders, aggregate DIP financing commitments totaling $250 million.

Judge Brendan L. Shannon of the Bankruptcy Court, District of Delaware in Wilmington also granted VeraSun's emergency request to pay outstanding employee checks, to pay suppliers for postpetition goods and services and up to $20 million for goods delivered on or after October 11, 2008, and for other emergency relief.