UPDATE 1-BioFuel receives notice of default from lenders

* Might need to file for bankruptcy

* Expects to operate at or around cash breakeven in Q2

* Says has not missed any payments owed under facility

May 28 (Reuters) - BioFuel Energy Corp (BIOF.O) said it received a notice of default from lenders, and had entered into an agreement to access its bank accounts to pay vendors for corn, natural gas and other materials.

The company said it might have to curtail or cease operations and be forced to seek relief from creditors through a bankruptcy filing should its lenders delay or prevent it from accessing funds necessary to continue operations.

The ethanol producer said it had entered into a limited consent and waiver and amendment with its lenders, led by BNP Paribas.

Denver-based BioFuel said it will make the payments, while its lenders continue to pursue a longer-term solution to its liquidity issues.

BioFuel had realized about $36 million of hedging losses with U.S. agribusiness giant Cargill Inc [CARG.UL] and an additional $3 million in unrealized losses in August last year. It later managed to reduce its debt to $11.4 million, after reaching a debt repayment agreement with Cargill.

Based on recent spot margins, BioFuel expects to operate at or around cash breakeven in the second quarter prior to debt service payments.

Shares of the company closed at $0.69 Thursday on Nasdaq.

For the alerts, double-click [ID:nWNAB4442] (Reporting by Shradhha Sharma in Bangalore; Editing by Aradhana Aravindan)