Last Friday (31st October) saw VeraSun, one of the USA's largest ethanol producers, file for Chapter 11 bankruptcy protection. The move, says the company, follows a series of events which have impacted on its liquidity and will give it the opportunity to reorganize under the protection of the Chapter 11 filing.

Commenting on the situation Don Endres VeraSun's CEO said; "Today's filing allows VeraSun to address its short-term liquidity constraints as we navigate historically challenging market conditions while we focus on restructuring to address the company’s long-term future. We appreciate the loyalty of our employees, customers and suppliers during this challenging time."

Explaining its downturn in fortunes the company said that it 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.

In a statement issued by the company last Friday it said that during the chapter 11 proceedings, it plans to resume normal operations. "The company has taken steps to ensure continued supply of product to its customers and to fulfill all customer obligations. In that regard, VeraSun is working closely with its lenders and expects to reach an agreement before the 'first-day' hearing on Monday (3rd November) for additional committed financing to provide adequate liquidity to fund operations in the normal course."

The company expects that it will not scale back its purchases of raw materials, and corn and other suppliers will continue to be paid in full for all goods and services furnished after the filing date as required by the Bankruptcy Code. The company has also sought authority from the bankruptcy court to pay for goods delivered to the company on or after 11th October 2008.