On October 31, 2008, VeraSun Energy Corporation (“VeraSun”), and 24 of its affiliates or subsidiaries filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware. Nine months after VeraSun filed for bankruptcy, the company filed its Joint Plan of Liquidation. Thereafter, in October of 2009, VeraSun filed a modified Plan of Liquidation which was confirmed by the Bankruptcy Court on October 23, 2009. Pursuant to VeraSun’s Plan, KDW Restructuring and Liquidating Services LLC (“KDW”) is authorized to pursue, litigate and/or settle various pieces of litigation, including avoidance actions. See VeraSun’s Motion Establishing Procedures Governing Adversary Proceedings, pp. 2-3. It was these avoidance actions that were commenced on behalf of the Debtors recently in the Bankruptcy Court.
In November of 2008, I wrote a post about the VeraSun bankruptcy. My prior post looked at VeraSun’s business, why the company filed for bankruptcy and who some of the larger creditor constituencies are in the bankruptcy proceeding. A copy of my prior post regarding VeraSun is available here for review. Below is an excerpt from my 2008 post discussing the company’s business and some of the factors leading to bankruptcy:
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.
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.
The Avoidance Actions
Many, if not most, of the VeraSun avoidance actions were filed earlier this month. Like the bankruptcy proceeding, the avoidance actions are before the Honorable Brendan L. Shannon. On November 12, 2010, VeraSun filed its Motion for Order Establishing Procedures Governing Adversary Proceedings (the “Procedures Motion”). A copy of the Procedures Motion is available here for review. VeraSun is represented in these proceedings by The Rosner Law Group and Kelley Drye & Warren LLP.