Verasun Files Chapter 11

This isn't a story about the economics of ethanol but of a poorly run company that expanded to fast and caught caught in the credit freeze..

VeraSun Energy Corp (VSE)., one of the nation's largest ethanol producers, announced late Friday that it is filing for Chapter 11 bankruptcy protection. VeraSun, based in Sioux Falls, S.D., after an initial public offering in 2006, has seen shares generally pushed downward, changing hands at 48 cents a share in 4 p.m. composite trading Friday on the New York Stock Exchange, well off the stock's 52-week-high of $17.75.

The company says it expects to continue normal operations and pay its workers regular salaries while it reorganizes. According to a company news release "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."
"Worsening capital market conditions and a tightening of trade credit resulted in severe constraints on the Company's liquidity position," the company said. It intends to work with lenders to secure "additional committed financing to provide adequate liquidity to fund operations in the normal course."

What remains to be seen is if larger, more financial prudent competitors like Archer Daniels Midland (ADM) or The Andersons (ANDE) now look to pick up piece of Verasun at what may be fire-sale prices. Both have exercised financial restraint the past two years and would have the ability to finance a deal. For  ADM, pulling off a deal for some of Verasun's production capabilities would cement its position as the world's most prolific ethanol producer.