UPDATE 1-Ethanol maker VeraSun preparing for bankruptcy-WSJ

*VeraSun preparing to file for bankruptcy - WSJ

*Has lined up $250 million in financing - WSJ

*Company not immediately available for comment

LOS ANGELES, Oct 31 (Reuters) - Ethanol maker VeraSun Energy Corp has told its lenders and bondholders that it is preparing to file for bankruptcy, according to a report in The Wall Street Journal citing people familiar with the conversations.

The company, which last month hired Morgan Stanley as an adviser to evaluate strategic alternatives for its struggling business, has lined up $250 million in financing for a pre-packaged bankruptcy, the Journal report said.

A VeraSun spokesman was not immediately available for comment.

VeraSun put itself up for sale in September after taking a beating for locking in costly contracts for corn, the main ingredient for ethanol in the United States. Corn prices have fallen by about half since peaking over the summer.

The company's stock price has plummeted from a 52-week high of $17.75 in December to less than $1 this week.

Earlier on Friday, Raymond James analyst Pavel Molchanov downgraded VeraSun to "underperform" and warned clients that bankruptcy was "a real possibility" for the company.

"An outright sale of the company seems less and less likely," Molchanov wrote.

VeraSun shares were trading at 45 cents in extended trading following the Journal report. (Reporting by Nichola Groom, editing by Matthew Lewis)