Moody's upgrades VeraSun

Moody's Investors Service said it upgraded VeraSun Energy Corp.'s corporate family rating and 9 7/8% senior secured notes due 2012 to B2 from B3 and affirmed the SGL-1 speculative grade liquidity rating. The outlook remains positive.

The agency said the upgrade reflects the firm's significant cash balances following its initial public offering in June, strong operating results in 2006, favorable industry environment and the pre-funded status of the planned capital expenditures for the company's fourth and fifth ethanol plants. VeraSun received $233.4 million of proceeds from the IPO, and unrestricted cash was $312.9 million at June 30.

The ratings continue to reflect the risks associated with the developing nature of the ethanol industry, industry economics that are driven by government legislation, low barriers to entry, aggressive competing capacity expansions that could lead to oversupply and lower ethanol prices, the presence of competitors with substantially greater resources, VeraSun's narrow product profile with predominately one commodity product, modest firm size and the lack of correlation between input costs and ethanol prices impacting margins, Moody's said.

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