Moody's rates VeraSun SGL-1, notes B3

Moody's Investors Service said it assigned a B3 corporate family rating and SGL-1 speculative grade liquidity rating to VeraSun Energy Corp. and a B3 rating to its $200 million of senior secured notes.

The outlook is stable.

Note proceeds, combined with $90.3 million of new equity raised in a separate offering, will be used to repay $141 million in existing debt plus accrued interest and related premiums, to fund the construction of a new 110 million gallon ethanol facility and provide over $14 million of cash for general corporate purposes.

The ratings reflect the developing nature of the ethanol market in the United States, aggressive competing capacity expansion, the company's limited operating history, the potential for additional leverage as the company seeks to expand capacity further, very substantial margin risk due to the commodity nature of all of VeraSun's products and feedstocks, substantial refinancing risk, the presence of two major competitors with substantially greater resources, limited product diversity (ethanol will account for over 80% of sales) and low barriers to sector entry, the agency said.

Moody's said the ratings are supported by VeraSun's modest pro-forma leverage, the substantial amount of liquidity raised by the bond offering to pre-fund the construction costs for a third ethanol plant, its position as the second-largest producer of ethanol in the United States and a management team that has demonstrated the ability to successfully build, operate and improve the efficiency of large ethanol facilities.

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