(The following statement was released by the ratings agency)
March 18 - Moody’s Investors Service downgraded the speculative grade
liquidity rating of VeraSun Energy Corporation (VSE.N: Quote, Profile, Research) (”VeraSun” B2 corporate
family rating / stable outlook) to SGL-3 from SGL-1. The rating on the $210
million senior secured notes due 2012 was downgraded to Ba3 from Ba2 and the
loss given default (LGD) point estimates on the two public debt issues changed.
The downgrade in the senior secured notes in accordance with Moody’s loss given
default methodology reflects a higher expected loss rate due to changes in the
company’s capital structure with higher trade accounts payable as the company
has started new plants. The company’s B2 corporate family rating and B3 rating
on the $450 million senior unsecured notes due 2017 were affirmed. The outlook
remains stable. The following summarizes the ratings.
VeraSun Energy Corporation
Ratings affirmed:
Corporate family rating — B2
Probability of default rating — B2
$450mm Sr unsec notes due 2017 — B3 (LGD5, 72%) from B3 (LGD5, 71%)
Ratings outlook - Stable
Ratings changes:
Speculative grade liquidity rating — SGL3 from SGL1
$210mm Sr sec notes due 2012 — Ba3 (LGD2, 23%) from Ba2 (LGD2, 18% )
The downgrade in the speculative grade liquidity rating reflects adequate
liquidity and follows several quarters of elevated capital expenditures for the
construction of new ethanol plants and the acquisition of ASAlliances Biofuels
LLC (ASA) that has decreased VeraSun’s cash and marketable securities balance
down to $154 million as of December 31, 2007. Additionally, the company’s
revolving credit facility is due in less than twelve months (December 2008).
The company prefunded its plant investments with proceeds from its 2006 IPO and
$450 million bond offering in May 2007. In 2007, the company reported $438
million in capital expenditures and used approximately $250 million of cash
towards the purchase of ASA. Another factor in the reduced liquidity rating is
the current commodity price environmental with volatile corn input costs and
ethanol sales prices resulting in volatile cash flow from operations that may
or may not contribute significantly to future capital expenditures. Elevated
corn prices (recently exceeding $5 per bushel) and ethanol prices that have
traded at a discount or small premium to gasoline prices are resulting in
reduced margins for ethanol producers (despite favorable federal legislation
passed in December 2007 mandating increased ethanol usage in 2008 and future
years).
The company’s liquidity is supported by its cash %26amp; short-term investments
balances ($154 million as of December 31, 2007), undrawn capacity under its
$275 million project finance credit facility to fund the former ASA plant under
construction at Bloomingburg, liquidity facilities established as part of the
project financing of the three ASA plants, and cash flows from operations.
Also, the company’s $30 million asset based revolver is undrawn ($21.6 million
available as of December 31, 2007 after accounting for outstanding letters of
credit), however the facility matures in less than twelve months. VeraSun has
stated it is in discussions to establish a larger revolver to accommodate its
increased working capital requirements as new ethanol plants start production.
VeraSun’s 2008 capital expenditures will fund the completion of seven ethanol
plants and corn oil extraction facilities and it is expected that the company
will have flexibility on the timing of its capital expenditures for certain
projects. The company’s 2008 capital expenditures could range from $175 million
to $275 million.
VeraSun Energy Corporation (”VeraSun”), headquartered in Brookings, South
Dakota, is a producer of ethanol in the United States with five facilities
having a production capacity totaling 560 million gallons per year (MGPY) as of
December 31, 2007. It has three additional ethanol plants under construction
due for completion in the first half of 2008. The firm is in the process of
acquiring US BioEnergy Corporation, which has five operating plants and three
plants under construction to be completed in 2008. After the acquisition, which
is expected to close in April 2008, and completion of plants under
construction, VeraSun will have 17 plants with a combined capacity of 1750MGPY,
making it the largest US ethanol producer. Revenues for the LTM ended December
31, 2007, which reflect the full year operations of only five of VeraSun’s
plants, were approximately $848 million. Please see the credit opinion on the
www.moodys.com website for more discussion on the company.
(New York Ratings Team)
