Tuesday, September 1, 2009

Notable financing (BLDR)

AlphaNinja - Home construction outfit Builders Firstsource (BLDR) management is scrambling to figure out what to do with a big recapitalization suggestion from its biggest stock AND debtholders. The deal calls for debtholders to retire said debt for common shares -->> although the common shares will be issued at $2.00 per share, while they traded yesterday for $7.00!!! Crazy dilution, but before I attack these bondholders for such a predatory suggestion, I must note that they're also the largest owners of the very stock they'd be diluting. I was surprised to see the stock only off a little earlier today, but now the selling has picked up, with shares off 30% to $5.50. The company is expected to lose massive amounts of money this year and next, so at some point stockholders are better off to accept "save your a$$" financing, even if it is very dilutive.

I talked to the company this morning, and they said that if the transaction were to take place then the two shareholders who filed the 13d will own about 58% of the common stock. THAT is the reason they're likely to be ok with diluting themselves.

Some details of the suggested plan to reduce debt, submitted by JLL Partners and Warburg Pincus Private Equity:

·The Company will raise $75 million of new common equity through a rights offering (the “Rights Offering”). JLL and Warburg Pincus will fully backstop the Rights Offering at a price of $2.00 per share.

·The Notes owned by entities affiliated with JLL and Warburg Pincus (currently, approximately $98 million in aggregate principal amount, or approximately 35% of the outstanding aggregate principal amount of Notes) will be exchanged for common stock of the Company valued at $2.00 per share.

We believe this transaction will create significant value for all stakeholders of the Company.

·Noteholders: With less debt on its balance sheet, the credit profile of the Company will be improved, and the position of the Noteholders will be enhanced. We believe that the proposed new interest rate reflects a fair “mark-to-market” rate for the New Notes. The Noteholders will also have the option to participate in the equity upside associated with any recovery in the housing market. Finally, we believe that the value of the New Notes, when issued, will reflect an immediate and significant accretion in value from the price currently quoted for the Notes, which is approximately 50% of par.

·Common stockholders: First, to the extent that they wish to do so, existing stockholders can participate in the Rights Offering. Moreover, the proposed Rights Offering backstop to be provided by JLL and Warburg Pincus will ensure that the Company has adequate capital. In addition, our proposal will leave the Company with substantially less debt and hence greater financial flexibility over the next several years. Finally, the extended maturities of the New Notes will provide the Company time to recover from the current industry downturn.

·Other stakeholders: Following the proposed recapitalization, the Company will be well positioned to survive the current downturn and to thrive as the housing market recovers, and we expect that the Company’s customers and trade creditors will have greater confidence in its long term viability.

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