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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowSouth Dakota-based VeraSun Energy Corp. has asked a bankruptcy court for permission to sell most of its assets by March 31, including five plants to Valero Energy Corp. for $280 million, the company said last Friday.
The agreement with Valero includes a key development site in the small Indiana city of Reynolds, and production facilities in Aurora, S.D.; Charles City, Fort Dodge, and Hartley, Iowa; and Welcome, Minn.
The Sioux Falls company wants to sell all production facilities and operations in separate or combined transactions.
Other states in which it does business include North Dakota, Nebraska, Wisconsin and Ohio.
VeraSun suspended construction of a 110-million-gallon-a-year plant in Reynolds, north of Lafayette, in October, citing deteriorating market conditions. Reynolds is the centerpiece of “Biotown USA,” an initiative to make Indiana a dynamo in the production of ethanol and biodiesel.
“Given current difficult industry conditions and continued constrained credit markets, we believe that commencing a sale process is in the best interest of company stakeholders,” said Don Endres, VeraSun’s CEO in a prepared statement.
Other companies have expressed interest in VeraSun’s assets, excluding those included in the proposed Valero transaction.
VeraSun will hold an auction for other bidders to offer more favorable terms than Valero’s bid. Bidders have until March 13 to submit qualifying bids. If qualifying bids are received, the company will conduct an auction on March 16.
VeraSun said it has enough liquidity to maintain production facilities and staff through the sale process.
The company in mid-September tried to raise $20 million in a public offering, but later scrapped that plan and retained Morgan Stanley to help it evaluate “strategic alternatives” involving anything from a buyout to a partial sale of assets.
It filed for Chapter 11 bankruptcy protection Oct. 31 after tightening credit markets erased its lifeline to weather volatile corn and fuel price swings.
Last month, VeraSun said it was putting seven of its bio-refineries up for auction as part of a bankruptcy court financing agreement. Those plants are at Ord and Central City in Nebraska; Albert City and Dyersville in Iowa; Woodbury, Mich.; Hankinson, N.D.; and Janesville, Minn.
Two weeks ago, a company spokesman said only four plants – Charles City, Fort Dodge and Hartley in Iowa and Aurora in South Dakota – remained operational, with the rest idled.
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 less than $5 per bushel in mid-August.
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