By Adam Lashinsky
May 14, 2007

The debate continues to rage about ethanol. Is it good for the environment? Maybe not. Is it good public policy to be supporting U.S. ethanol over imported products? Definitely not. Is there a ton of financing available for green-related projects? Oh yes.

Now comes news Monday that the ethanol gusher continues. VeraSun Energy (VSE), one of the few pure-play ethanol producers to trade publicly in the U.S., announced that it has raised slightly less than half a billion dollars in junk bonds. (The precise after-fee proceeds will be $436.4 million. Read the details here.)

VeraSun will use most of the money for ethanol facilities, which isn’t what it’s done with all of its prodigous fundraising. Last year it hauled in $450 million in an IPO at $23 a share, nearly half of which went to several of its early investors, including Bluestem Funds in South Dakota and the New York firm Eos Funds. This is a good illustration of how market bubbles work in the early stages. Early investors take advantage of subsequent enthusiasm and public investors get suckered into losing their money, at least in the short- and medium-term. VeraSun’s stock now trades for less than $18 per share, which probably explains why the debt markets were a better option than selling more stock. You’ll find similarly ugly stock charts for other ethanol offerings, including Aventine Renewable Energy (AVR) and Pacific Ethanol (PEIX).

This gusher most definitely will continue, by the way. At least until public investors get tired of helping savvy private investors cash out.

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