84 Lumber today launched the second phase of its bid to get out from under the rest of a $195 million, 18% interest loan when they asked Washington County, Pa., commissioners to sponsor 84's request for a federal loan.

The $5 million Community Development Block Grant that would be awarded by the federal Department of Housing and Urban Development would be combined with a similar $15 million federal loan being championed by neighboring Fayette County, Pa., whose commissioners voted Aug. 26 to sponsor 84's request. (Story) Those $20 million in grants under HUD's Section 108 program would then be applied to the final $55 million of the $195 million loan that an arm of 84 called Pierce Hardy Limited Partnership entered into in the spring of 2008 with Cerberus Capital Management. 84 plans to pay the rest through a new private loan with Wells Fargo worth about $20 million, $10 million from property sales expected to close before the rest of the refinancing is put together, and $5 million from 84 president Maggie Hardy Magerko.

Officials from Washington County weren't immediately available to say when the commissioners would consider 84's request.

Given that the Section 108 loans can be repaid in 17 years and require interest-only payments for the first two years, 84 would enjoy much more financial maneuverability than it does with its current loan. Aside from the 18% interest, the Cerberus loan requires that all asset sales be used to pay down the debt and is set to expire in April 2013.

On Aug. 25, Jeff Nobers, 84's vice president of marketing and public relations warned that the company--America's fifth-biggest LBM operation--could close more stores and lay off more workers if it cannot get out from under the Cerberus loan's terms. On Aug. 26, Magerko delivered a letter to Fayette County's commissioners saying 84 has been burning through cash and, because of the Cerberus loan, hasn't been able to use asset sales to put out the fire. Aside from the Cerberus loan, 84 also has an asset-based loan (ABL), secured by 84's operating assets, that had a commitment of $340 million and funded debt in April 2008 of $191 million.

"The cash burn has effectively been subsidized by the ABL loan, a reduction in debt by reducing inventory and other short term assets, and cash infusion by me," Magerko's letter said. "Our ABL loan has certain advance rates and requires that a certain asset theshold be met prior to the loan advancing money on additional assets beyond the threshold. At this point, we do not have satisfactory cushion against this threshold, and, the only answer is to refinance the term loan, so as to allow our ongoing asset sales to be applied to the cash burn of the operating company."

84's $1.35 billion in sales last year put it sixth on the latest ProSales 100 list of top LBM operations. A merger higher up the list has since moved it to fifth place. (See updated list.) At the start of this year it had just over 300 locations and 4,000 employees; it has about 280 locations now.