Builders FirstSource (BFS) revealed that it lost 8% of its market share during the third quarter 2009 due to an "extremely competitive pricing environment," according to company CEO Floyd Sherman.

During a conference call broadcast online this morning, the Dallas-based dealer pointed to a battle with competitors who have slashed prices as a partial catalyst for BFS's sales fall-off during the quarter. Yesterday, the company reported a 29% drop in net sales for the third quarter on sales of $188.9 million compared to $266.0 million in the third quarter 2008.

BFS also reported a net loss of $15.9 million for the third quarter 2009 compared to a net loss of $18.9 million for the same period a year ago

"We have sacrificed some sales and market share growth in an effort to protect gross margins and maintain our high credit standards," Charles Horn, BFS senior vice president and CFO, said during today's call. "Competition is as intense as we've seen since the downturn began, especially on commodity products."

Horn said that BFS's sales volume for the quarter fell by 26% compared to an 18% decline in housing starts in those same markets. "We have lost certain low margin business with some of our larger customers in order to protect our gross margin," Horn noted. The company operates 55 distribution centers and 51 manufacturing facilities in nine states.

Essentially, BFS chose not to match rock bottom prices from competitors, which is some cases has been driven by excess inventory from desperate competitors and dealer's liquidating inventory as they close shop altogether. However, for the first nine months of 2009, Sherman indicated that BFS had gained overall market share growth of 6%. During the second quarter, the company exited all operations in Ohio and New Jersey, which represented an income of about $700,000.

Today the company also announced $205 million common stock rights offering for outstanding second priority senior notes due in 2012. BFS expects to raise $205 million in new equity through shares priced at $3.50 per note. The company plans to use $75 million of the proceeds for corporate purposes, including maintaining future operations. Any proceeds over $75 million will be used to retire debt, Horn said.

BFS's two largest shareholders are JLL Partners Fund and Warburg Pincus Equity: combined they own more than 82% of the notes due in 2012. The 2012 notes will be exchanged for cash, new notes, and interest that will mature in 2016, or exchange them for a combination of cash and new notes, according to terms of the offer.

The major reason for the offering is, other than its $92 million in useable cash, BFS has no other "borrowing availability," according to Horn.

Sherman said the offer is a message to "the entire building community."

"Builders FirstSource has the capacity to withstand the current downturn and is prepared for the anticipated recovery," Sherman added, noting that BFS will emerge from the downturn as "a stronger and better capitalized competitor."