A Look at VeraSun’s Business
Based in Sioux Falls, South Dakota, VeraSun Energy Corporation (“VeraSun” or the “Debtor”), grew in its seven year history to become the leading producer of ethanol. As stated in a declaration of VeraSun’s chief financial officer in support of its “first day” bankruptcy motions (VeraSun declaration), VeraSun has fourteen production facilities in eight states producing over 1.4 billion gallons of ethanol annually. VeraSun employs approximately 932 employees, over one third of whom are salaried employees. The Debtor’s annual payroll expenses totals approximately $60 million, including payroll taxes.
Why VeraSun Filed for Bankruptcy
Given that ethanol is a blend component used in gasoline, VeraSun’s sales are influenced to a large degree by fuel prices. VeraSun produces corn-based ethanol, which means that the price of its largest commodity, corn, is tied to factors such as crop production, government regulation and annual rainfall. The high volatility in the price of corn and gasoline in 2008, combined with a unfavorable hedging strategy on the price of corn, led to VeraSun sustaining significant third quarter losses in 2008. VeraSun’s hedging strategy on corn was based on the assumption that corn prices would continue to rise in 2008. Instead, the price of a bushel of corn fell by 63% by August of 2008, resulting in third quarter losses estimated between $60 and $100 million.
In addition to fluctuations in corn and gas, VeraSun’s bankruptcy was also the result of its inability to service its debt. In 2007, VeraSun purchased ASA Opco Holdings, LLC for $405.6 million. To purchase ASA, VeraSun borrowed $233.4 million. In April of 208, VeraSun purchased US BioEnergy Corporation for $756.9 million, borrowing $525.1 million to fund its second acquisition. Both acquisitions represented VeraSun’s growth strategy in ethanol production. However, the unexpected shifts in fuel and corn prices meant VeraSun needed to raise cash in order to sustain its operations. A failed equity offering, coupled with the recent freeze on lending, gave VeraSun no other choice than to file for bankruptcy protection.
Administrative Claim Status for Vendors
One of the first motions the Debtor filed in this bankruptcy proceeding was a motion to confirm administrative expense status on obligations arising from the prepetition delivery of goods (read VeraSun’s bankruptcy motion here). Prior to filing for bankruptcy, VeraSun estimates that it ordered over $30 million in goods from vendors that were delivered to VeraSun within 20 days of the filing for bankruptcy. Such goods include grains, natural gas, and chemicals used in ethanol production. VeraSun has not paid for these goods and seeks an order from the court finding that VeraSun can pay such claims in the ordinary course of business, and that such claims are entitled to administrative claim status.
VeraSun filed the motion to pay administrative claims, in part, due to concerns that its vendors would need assurances that they will receive compensation for their goods and services in a timely manner. Without assurances that the Debtor can timely pay invoices as they come due, VeraSun worries that it could sustain significant harm if its vendors interrupt production or service.
According to its petition for bankruptcy (read the VeraSun bankruptcy petition), VeraSun has total assets estimated at $3.4 billion, and total liabilities of $1.9 billion. Its ten largest unsecured creditors include:
Wells Fargo (Indenture Trustee) … $447 million
Fagen Inc. … $16.6 million
Cargill … $12.9 million
Haas TCM Processing … $5.4 million
Union Pacific Railroad … $5.3 million
Crown Iron Works … $2.8 million
Norfolk Southern … $2.5 million
CSX Transportation … $2.2 million
Citigroup … $2.1 million
ICM Inc. … $2.1 million
VeraSun’s prepetition debt is as follows:
UBS Credit Facility (Secured) … $81.7 million
Senior Secured Notes … $210 million (2012 maturity date)
Senior Unsecured Notes … $450 million (2017 maturity date)
ASA Senior Credit Facility (Secured) … $26.7 million
AgStar Credit Facilities (Secured) … $464.9 million
Marion Construction Term Note (Secured)… $90 million (2013 maturity date)
The Delaware Bankruptcy Proceeding
This bankruptcy proceeding is assigned to the Honorable Brendan L. Shannon. The following are some of Judge Shannon’s opinions in prior bankruptcy proceedings: In re Elrod Holdings, In re Three A’s Holdings, and In re APCO Liquidating Trust. VeraSun is represented by the law firm of Skadden, Arps, Slate, Meagher & Flom LLP. Given that the Debtor has over 1,700 creditors and potential parties in interest, it has filed a motion with the court seeking to have Kurtzman Carson Consultants, LLC appointed as the Debtor’s claims and balloting agent.
The following are a list of affiliated Debtors who also filed bankruptcy petitions:
VeraSun Energy Corporation
ASA Abion, LLC
ASA Bloomingburg, LLC
ASA Linden, LLC
ASA OpCo Holdings, LLC
US Bio Marion, LLC
US BioEnergy Corporation
VeraSun Albert City, LLC
VeraSun Aurora Corporation
VeraSun BioDiesel, LLC
VeraSun Central City, LLC
VeraSun Charles City, LLC
VeraSun Dyersville, LLC
VeraSun Fort Dodge, LLC
VeraSun Granite City, LLC
VeraSun Hankison, LLC
VeraSun Hartley, LLC
VeraSun Janesville, LLC
VeraSun Litchfield, LLC
VeraSun Marketing, LLC