Top U. S. Ethanol Producer Files Chapter 11 Bankruptcy
VeraSun's predicament was succinctly summed up in the press release that accompanied its filing, which confirmed that the action was precipitated by a series of events that led to a contraction in operating liquidity that impacted both ongoing business and future investments 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 to take better advantage of VeraSun's position as one of the nation's largest producers of ethanol."
Established seven years ago, VeraSun had experienced a fairly meteoric rise prior to this point. When the company went public in 2006, its stock traded above $30 per share, a figure that had dropped to under half a dollar following its final 16-percent tumble during last Friday's trading. As noted, the main culprit here was the fluctuation in corn prices. More directly, how VeraSun tried to deal with them. Per-bushel costs of that key commodity stood in the $7-$8 range at mid-year when the firm locked into various futures contracts, a figure nearly double its current level. That unexpected reversal, compounded by the recent credit freeze-up that has had such a crippling effect on the rest of the U.S. economy, devolved into a perfect storm scenario for VeraSun.