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U. S. Oil Refiner Buys Into Ethanol

Oil refiner Valero Energy beat out Archer Daniels Midland in buying bankrupt VeraSun Energy Corp.’s ethanol plants because ADM was only interested in buying the entire company, a lawyer for VeraSun said March 18.

VeraSun announced March 17 that Valero, the largest U. S. oil refiner, had won an auction to buy seven of its ethanol plants while three VeraSun creditors would buy the rest of its plants for a total of about $1.05 billion, topping ADM’s bid of $700 million.

U. S. Bankruptcy Court Judge Brendan Shannon told a hearing in Wilmington, Delaware that he would approve the sale, saying VeraSun had held “a thorough and complete auction.”

Valero won the auction with a bid of $477 million, but will pay about $537 million in total to cover working capital and other costs. It expects to close the deal in April.

“The debtors truly are pleased with where we are today,” Pat Nash, lawyer for VeraSun, told the court.

“While ADM was only willing to acquire the whole company, Valero was willing to acquire … any number of the plants,” Nash said, adding that ADM’s bid had totalled $700 million.

VeraSun, the nation’s largest publicly listed ethanol maker, filed for Chapter 11 bankruptcy protection in October last year after it locked in corn prices near their highest levels of the year, squeezing its margins as prices for ethanol weakened.

Valero had submitted bids for each of the 16 plants owned by VeraSun, as well as its four planned plants, but ADM’s bid was for all the plants together.

VeraSun listed debts of $1.91 billion and assets of $3.45 billion when it filed for bankruptcy protection.

While the Valero offer would give some money to unsecured creditors of VeraSun who hold $450 million in securities, the plants sold to the company’s other creditors would not because they had made “credit bids” in which they used their existing claims against VeraSun.

The creditors that won bids under the auction were Dougherty Funding LLC, which will pay $93 million for one plant, a consortium led by AgStar Financial Services, which will pay $324 million for six plants and a group led by West LB AG, which will pay $99 million for two plants.

Valero’s winning bid includes $350 million for five plants in South Dakota, Iowa and Minnesota and a development site in Indiana that were grouped together under VeraSun Group.

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