VeraSun shares suspended; company seeks $190M
SIOUX FALLS, S.D. (AP) - Shares of VeraSun Energy Corp., which accounts for about 13 percent of the nation's ethanol capacity, were suspended Monday on the New York Stock Exchange as the company sought $190 million to make payroll.
Shares of VeraSun fell 52 percent to 23 cents before trading was cut off.
"This decision was reached in view of the Company's October 31, 2008 announcement that it and 24 of its subsidiaries have filed voluntary petitions for relief under chapter 11," the NYSE said in a statement.
Analysts said larger players in the industry remain sound, but crude price that have been halved since July must rise for smaller operators to survive.
The Sioux Falls-based company said in its Delaware court filing Monday that it would not be able to make this week's payroll without help. VeraSun said it also needed money to buy corn, natural gas, pay for leases and other costs.
Near-zero profit margins, freezing credit markets and bad bets on commodities were all contributors, said Pavel Molchanov, an analyst with Raymond James.
"VeraSun could almost certainly have survived one of those three things," Molchanov said. "Perhaps it could have survived two of them, but it could not survive all three."
Molchanov said VeraSun was very heavily leveraged and slim margins made it nearly impossible to service debt.
In its filing, VeraSun lists $3.45 billion in assets and $1.91 billion in debt.
VeraSun said its lenders would provide up to $25 million on an interim basis and up to $190 million to fund working capital needs.
Meanwhile on Monday, Standard & Poor's lowered its long-term corporate credit rating on VeraSun and its rating on the company's $210 million senior secured notes due 2012 to "D" from "B-." It also lowered the rating on the company's $450 million senior unsecured notes due 2017 to "D" from "CCC."
"We expect that VeraSun is unlikely to meet these future obligations, including a $31.5 million interest payment on senior debt in December, and will need to complete a distressed exchange offer whereby it will restructure some or all of its debt issuances," S&P credit analyst Mark Habib said in a statement.
Oppenheimer Research analyst Joseph Gomes said, however, that VeraSun would not scale back operations, including corn purchases.
"As a result, we do not expect the Chapter 11 filing to have a significant positive impact on the other industry participants," Gomes wrote in a client note.
Molchanov said other large ethanol players such as diversified agribusiness giant Archer Daniels Midland Co. and privately held Poet LLC seem to be on solid ground. But he said many small farmer co-ops and private companies will likely consider bankruptcy if current market conditions persist.
He said the price of oil must go up for the companies to survive. The price for a barrel of crude has fallen more than $80 from highs near $150 in July.
Oil won't stay around $65 barrel forever, he said, but companies' futures could hinge on how long the prices remain low.
"If it's going to be a couple weeks, then that's not a big deal," Molchanov said. "But if oil prices could stay depressed well into next year, then more companies would be facing liquidity problems."
VeraSun, founded in 2001, went public in June 2006 amid perfect market conditions. Corn was cheap, gas cost a bundle and refiners were clamoring for more ethanol to use as a cleaner-burning alternative to the additive MTBE.
But skyrocketing corn costs began cutting into ethanol producers' profits, and many tried to use hedging to control costs. Hedging sets future prices for corn sellers while helping buyers avoid the risk of volatile price swings by letting them lock in at a set cost.
After VeraSun locked into prices for its feedstock for the third quarter, corn went into a sharp decline from almost $8 per bushel to a low of less than $5 per bushel in mid-August.
After a mid-September announcement of an expected third-quarter loss of $63 million to $103 million, the Sioux Falls-based company tried to raise $20 million in a public offering. The company then retained Morgan Stanley to help it evaluate "strategic alternatives" involving anything from a buyout to a partial sale of assets.
The nation's 177 ethanol plants have the capacity to produce about 10.9 billion gallons annually, according to the Renewable Fuels Association. VeraSun's 16 biorefineries, 14 of which are in operation, can produce 1.4 billion gallons of the renewable fuel each year, second only to Poet.