By Steven Mufson
Washington Post Staff Writer
Saturday, November 1, 2008

VeraSun Energy, one of the nation's biggest ethanol producers, filed for bankruptcy protection last night, after the credit crisis made it impossible for the company to recover from a bad bet it made on corn prices.

The filing marked an abrupt reversal for a company that had acquired a competitor last year and expanded, with the help of federal ethanol mandates and subsidies, to 16 production facilities in eight states. Experts on the industry said that its facilities were well-run.

But VeraSun, which produces about 1.6 billion gallons a year of corn-based ethanol, was caught by a spike in corn prices earlier this year, caused by rising demand, a general increase in commodities prices and floods in Iowa. After watching prices rise from $6 in late May, it reached agreements to buy corn at just the wrong time.

In a Securities and Exchange Commission filing last month, the Sioux Falls, S.D.-based company said that it had locked in corn purchases after market conditions had driven the price to $8 a bushel in July. Prices fell to $5 by mid-August and are about $4 a bushel now. The company said it expected to incur a third-quarter loss of $63 million to $103 million on its corn hedging.

That disclosure helped drive VeraSun's stock down to a fraction of its former value. The company's shares closed yesterday at 48 cents, down 97 percent from a 52-week high of $17.75 last December.

VeraSun's recovery has been complicated by the credit crisis. Last month, the company said it had hired investment banks to advise it on "strategic" alternatives, usually a way of signaling it was considering a sale. But with most companies and banks hoarding cash, there were apparently no takers.

"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," the company said in a statement last night.

VeraSun said that it would seek to continue normal operations while under Chapter 11 protection from creditors. As of June 30, the company reported $1.4 billion in long-term debt.