It was no surprise that VeraSun, one of the nation’s largest ethanol producers, filed for reorganization under Chapter 11 on Friday. The move has been expected as the company’s position continued to worsen after taking a fall on pricey forward corn contracts. The company was put on the market in September and Morgan Stanley was hired as an adviser.
According to the company, “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.”
VeraSun officials say they will maintain operations at their 16 production facilities in eight states.