VeraSun, others look for funding

By Bryan Sims | January 12, 2009
Web exclusive posted Jan. 20, 2009, at 2:42 p.m. CST

Bankrupt South Dakota-based ethanol producer and marketer VeraSun Energy Corp. intends to auction off seven of its ethanol plants as a condition of receiving debtor-in-possession financing needed to maintain the plants' workforce and keep them on "hot idle" status until April 30, according to a motion approved by the U.S. Bankruptcy Court in Delaware.

VeraSun Energy said it needs approximately $12.3 million in additional funds to continue to pay staff and maintain the facilities through April 30. The auction will occur as a condition set by VeraSun Energy's debtor-in-possession lender AgStar Financial Services, according to the filing.

According to the motion, the company will hold an auction between March 16 and March 31 to sell its ethanol plants in Albert City and Dyersville, Iowa; Ord and Central City, Neb.; Woodbury, Mich.; Janesville, Minn.; and Hankinson, N.D.

All seven of the plants set to be auctioned were obtained by VeraSun Energy as part of the company's acquisition of St. Paul, Minn.-based U.S. BioEnergy Corp. in 2008. Construction on the Janesville ethanol plant is complete but start-up operations have not occurred. VeraSun also acquired a Marion, S.D. facility as part of the acquisition but it will not be auctioned because it was financed by a different lender, according to VeraSun Energy spokesman Mike Lockrem.

"The auction process is only for those seven plants," he said.

VeraSun Energy also owns plants in Albion, Neb.; Aurora, S.D.; Bloomingburg, Ohio; Charles City, Fort Dodge and Hartley, Iowa; Reynolds and Linden, Ind.; and Welcome, Minn. All but four of its plants—VeraSun Charles City LLC, VeraSun Fort Dodge LLC, VeraSun Hartley LLC and VeraSun Aurora LLC—remain in operation with a combined total capacity of 450 MMgy.

In November, VeraSun Energy said it had received an unsolicited takeover offer by an anonymous third-party just hours after Poet LLC Chief Executive Officer and President Jeff Broin declared that the company was exploring the acquisition of "stranded assets." Neither Poet LLC nor VeraSun Energy confirmed negotiations took place.

"The auction process is unrelated to previously announced indication of interest received by VeraSun," Lockrem said.

Meanwhile, other ethanol producers are facing similar financial hardships and are finding ways to survive the economic downturn.
Minnesota-based Advanced BioEnergy LLC has admitted it's considering a possible sale or merger, according to a 10-K filing Dec. 29, 2008, with the U.S. Securities and Exchange Commission. The company operates two ethanol plants in South Dakota and one in Nebraska.

According to the SEC filing, Advanced BioEnergy LLC defaulted on a $10 million loan with Piper Jaffray & Co. in October 2008. The company said it "will continue to work directly with Piper Jaffray & Co., an affiliate of PJC Capital, to explore all available strategic alternatives. This may include the sale or divestiture of specific operating assets, planned merger of all or a part of Advanced BioEnergy LLC and its wholly owned subsidiaries, issuance of various debt instruments or the sale of our equity securities."

In Missouri, Show Me Ethanol LLC has requested permission from its shareholders to ask for $10 million in additional funding through a voluntary capital contribution and a capital call of approximately $4,800 per share to maintain operations at its 55 MMgy facility in Carrolton, Mo., according to a Dec. 29, 2008 SEC filing. The company said if the money isn't raised, it will have to file for Chapter 11 bankruptcy protection.