UPDATE:VeraSun Sale Could Set Floor Price For Ethanol Assets
March 17 2009 - 10:54PM
Dow Jones News
The results of a U.S. Bankruptcy Court hearing Wednesday could
determine a new floor price for ethanol plants on the bankruptcy
auction block.
If Judge Brendan Shannon approves a suite of bids on VeraSun
Energy Corp.'s (VSUNQ) 17 facilities, buyers interested in other
distressed ethanol assets might hope to pay the same low prices
offered by VeraSun's suitors.
VeraSun Tuesday accepted bids totaling $993 million for its
facilities.
The price is just above a quarter of the replacement cost of the
plants, but may provide a benchmark for cash-rich companies to use
to buy assets from struggling ethanol producers. Analysts who
follow the industry have looked to the VeraSun sale to set a
benchmark price for ethanol assets, which may catalyze
consolidation in the industry.
While several small ethanol companies have filed for bankruptcy
protection in recent months, the auction of VeraSun's assets will
be the first sale of a large network of ethanol plants built to the
top industry standard.
The ethanol industry grew rapidly from 2005 to 2007, following
the adoption of legislation mandating the use of renewable fuels.
However, producers of the corn-based fuel were squeezed by high
corn prices early in 2008, and low demand for gasoline, which often
includes ethanol as a component. The ethanol-market weakness forced
VeraSun to file for bankruptcy protection in October.
Without adequate financing to continue to operate its plants or
reorganize, VeraSun announced plans to sell the assets.
Following a two-day auction that began Monday, Sioux Falls,
S.D.-based VeraSun selected oil refiner Valero Energy Corp. (VLO)
as the top bidder on seven ethanol plants, and on the option to
build an eighth. Valero's bid of $477 million, or 61 cents per
gallon of production capacity, is slightly above the refiner's
preliminary bid of about 50 cents per gallon of capacity.
VeraSun hopes to sell the rest of its plants to its secured
creditors, who have offered credit bids, rather than cash, for the
plants.
Three separate groups of lenders have been formed. Dougherty
Funding LLC bid on one plant, lenders led by West LB A.G. bid on
two others, and lenders led by AgStar Financial Services bid on the
remaining six plants.
Archer Daniels Midland Co. (ADM) said it bid on some of the
assets. However, the company was not selected as the top bidder for
any of the plants. The agribusiness giant's interest in VeraSun's
assets indicates that it could bid on other ethanol facilities that
are on the block in the future. Other ethanol producers like
privately-held POET LLC have also expressed interest in potentially
purchasing ethanol assets.
The VeraSun deal will set a widely-known benchmark that could
potentially help these companies purchase assets from other
struggling ethanol producers.
Earlier this week, another ethanol producer, Aventine Renewable
Energy Inc. (AVR) notified the Securities and Exchange Commission
Monday that it might be forced to file for Chapter 11 protection if
it could not secure additional funding.
-By Jessica Resnick-Ault, Dow Jones Newswires; 201-938-4435;
jessica.resnick-ault@dowjones.com