AgStar secured creditor in bankruptcy | TSLN.com

AgStar secured creditor in bankruptcy

Todd Neeley, DTN Staff Reporter

DTN file photo by Todd NeeleyThe effects of VeraSun's bankruptcy could be widespread.

OMAHA (DTN) – The legal fight amongst major agricultural lenders over creditor status in the VeraSun Energy Corp. bankruptcy case reflects some of the complications of major agribusiness financing and what happens when such a large, aggressive company collapses.

In one corner of the ring is the bankruptcy-financing group – major banks, investment funds and insurance companies – that held bonds in VeraSun going back to 2005. Rather than be stuck with bonds as unsecured creditors, these companies got approval from the court to reestablish their position and protect their investments by agreeing to cash-flow VeraSun’s operations through the bankruptcy with another $196 million in loans and assurances that they are a “super priority” class of creditor. Under the terms of the deal, VeraSun unconditionally guarantees to pay back the new loans. These investors are secured, they have priority and they are at the front of any line to be paid in this case. These investors include companies such as AIG, SunAmerica, Trilogy Portfolios and Wayzata Opportunity Funds, which collectively ponied up the bulk of the loans.

In the other corner is AgStar Financial Services, which scored an important victory Thursday when the bankruptcy judge declared AgStar a secured creditor. AgStar wanted secured creditor standing over $465 million in credit it provided to the seven former U.S. BioEnergy plants that VeraSun acquired last spring.

While farmers have a special status as unsecured creditors, the legal maneuvering over the past week puts two major financiers in front of other creditors in the case now, including the farmers who had delivered grain or have contracts to deliver.

Until the Chapter 11 bankruptcy organization, Wells Fargo Bank largely helped finance VeraSun as the agent issuing bonds to major investors. Initially, Wells Fargo was listed as VeraSun’s largest unsecured debtor due to $210 million in bonds owned by mainly by the same group that took over status as the new bankruptcy lending group. Until recently, Wells Fargo was vigorously defending the position of the bonds against AgStar and the new financing group. The new financing agreement with the investment firms approved by the court effectively minimizes Wells Fargo’s involvement, said Eric Schaffer, an attorney with Reed Smith LLP in Pittsburgh, which represents Wells Fargo.

“Wells Fargo was originally a secured creditor on senior-secured notes totaling around $210 million,” Schaffer said. “Now, some note holders are providing new loans, new money to pay off the pre-existing bonds. Wells Fargo does not actually have an economic interest here.”

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The initial filing by VeraSun listed Wells Fargo as an unsecured creditor with bonds valued at $447 million. However, later filings by Wells Fargo listed the bank as a trustee over $210 million in bonds issued. Under the terms of the new financing, the investment firms agreed to freeze their credit claims and not place any liens on VeraSun for the earlier bonds as long as the investors remain at the front of the creditor line.

Schaffer said the bank has handed control of the bonds to the financiers.

OMAHA (DTN) – The legal fight amongst major agricultural lenders over creditor status in the VeraSun Energy Corp. bankruptcy case reflects some of the complications of major agribusiness financing and what happens when such a large, aggressive company collapses.

In one corner of the ring is the bankruptcy-financing group – major banks, investment funds and insurance companies – that held bonds in VeraSun going back to 2005. Rather than be stuck with bonds as unsecured creditors, these companies got approval from the court to reestablish their position and protect their investments by agreeing to cash-flow VeraSun’s operations through the bankruptcy with another $196 million in loans and assurances that they are a “super priority” class of creditor. Under the terms of the deal, VeraSun unconditionally guarantees to pay back the new loans. These investors are secured, they have priority and they are at the front of any line to be paid in this case. These investors include companies such as AIG, SunAmerica, Trilogy Portfolios and Wayzata Opportunity Funds, which collectively ponied up the bulk of the loans.

In the other corner is AgStar Financial Services, which scored an important victory Thursday when the bankruptcy judge declared AgStar a secured creditor. AgStar wanted secured creditor standing over $465 million in credit it provided to the seven former U.S. BioEnergy plants that VeraSun acquired last spring.

While farmers have a special status as unsecured creditors, the legal maneuvering over the past week puts two major financiers in front of other creditors in the case now, including the farmers who had delivered grain or have contracts to deliver.

Until the Chapter 11 bankruptcy organization, Wells Fargo Bank largely helped finance VeraSun as the agent issuing bonds to major investors. Initially, Wells Fargo was listed as VeraSun’s largest unsecured debtor due to $210 million in bonds owned by mainly by the same group that took over status as the new bankruptcy lending group. Until recently, Wells Fargo was vigorously defending the position of the bonds against AgStar and the new financing group. The new financing agreement with the investment firms approved by the court effectively minimizes Wells Fargo’s involvement, said Eric Schaffer, an attorney with Reed Smith LLP in Pittsburgh, which represents Wells Fargo.

“Wells Fargo was originally a secured creditor on senior-secured notes totaling around $210 million,” Schaffer said. “Now, some note holders are providing new loans, new money to pay off the pre-existing bonds. Wells Fargo does not actually have an economic interest here.”

The initial filing by VeraSun listed Wells Fargo as an unsecured creditor with bonds valued at $447 million. However, later filings by Wells Fargo listed the bank as a trustee over $210 million in bonds issued. Under the terms of the new financing, the investment firms agreed to freeze their credit claims and not place any liens on VeraSun for the earlier bonds as long as the investors remain at the front of the creditor line.

Schaffer said the bank has handed control of the bonds to the financiers.

OMAHA (DTN) – The legal fight amongst major agricultural lenders over creditor status in the VeraSun Energy Corp. bankruptcy case reflects some of the complications of major agribusiness financing and what happens when such a large, aggressive company collapses.

In one corner of the ring is the bankruptcy-financing group – major banks, investment funds and insurance companies – that held bonds in VeraSun going back to 2005. Rather than be stuck with bonds as unsecured creditors, these companies got approval from the court to reestablish their position and protect their investments by agreeing to cash-flow VeraSun’s operations through the bankruptcy with another $196 million in loans and assurances that they are a “super priority” class of creditor. Under the terms of the deal, VeraSun unconditionally guarantees to pay back the new loans. These investors are secured, they have priority and they are at the front of any line to be paid in this case. These investors include companies such as AIG, SunAmerica, Trilogy Portfolios and Wayzata Opportunity Funds, which collectively ponied up the bulk of the loans.

In the other corner is AgStar Financial Services, which scored an important victory Thursday when the bankruptcy judge declared AgStar a secured creditor. AgStar wanted secured creditor standing over $465 million in credit it provided to the seven former U.S. BioEnergy plants that VeraSun acquired last spring.

While farmers have a special status as unsecured creditors, the legal maneuvering over the past week puts two major financiers in front of other creditors in the case now, including the farmers who had delivered grain or have contracts to deliver.

Until the Chapter 11 bankruptcy organization, Wells Fargo Bank largely helped finance VeraSun as the agent issuing bonds to major investors. Initially, Wells Fargo was listed as VeraSun’s largest unsecured debtor due to $210 million in bonds owned by mainly by the same group that took over status as the new bankruptcy lending group. Until recently, Wells Fargo was vigorously defending the position of the bonds against AgStar and the new financing group. The new financing agreement with the investment firms approved by the court effectively minimizes Wells Fargo’s involvement, said Eric Schaffer, an attorney with Reed Smith LLP in Pittsburgh, which represents Wells Fargo.

“Wells Fargo was originally a secured creditor on senior-secured notes totaling around $210 million,” Schaffer said. “Now, some note holders are providing new loans, new money to pay off the pre-existing bonds. Wells Fargo does not actually have an economic interest here.”

The initial filing by VeraSun listed Wells Fargo as an unsecured creditor with bonds valued at $447 million. However, later filings by Wells Fargo listed the bank as a trustee over $210 million in bonds issued. Under the terms of the new financing, the investment firms agreed to freeze their credit claims and not place any liens on VeraSun for the earlier bonds as long as the investors remain at the front of the creditor line.

Schaffer said the bank has handed control of the bonds to the financiers.

todd neeley can be reached at todd.neeley@dtn.com