Moody's rates Green Earth loans B3

Moody's Investors Service said it assigned a provisional B3 rating to the $91 million in first-lien senior secured credit facilities to be issued by Green Earth Fuels of Houston, LLC, which will include $20 million term loan, a $61 million synthetic letter-of-credit facility and a $10 million revolving credit facility.

The outlook is stable.

Proceeds from the transaction will be used, together with a $25 million second-lien term loan, to complete the construction of a biodiesel production facility, to repay a portion of the sponsors' cash equity investment, to satisfy working capital needs and provide credit support to the project's feedstock suppliers and to hedge counterparties.

The agency said that the project and the biodiesel industry as a whole are heavily dependent on a federal tax credit that is currently due to expire at the end of 2008 and that without the benefit of the tax credit, the project cannot cover its feedstock costs, let alone its fixed costs.

However, the credit facilities are structured to substantially mitigate the risk that the legislature will fail to renew the tax credit, Moody's said, as the term loan is scheduled to mature at the same time that the tax credit currently expires and until the tax credit is extended, Green Earth will be prohibited from entering into contracts or hedges that extend beyond the end of 2008 and require it to post letters of credit.

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