Builders FirstSource (BFS) has amended terms of support and investment agreements with the investment groups that collectively hold almost half of all BFS shares and much of the building material dealer's debt, BFS announced Thursday. The new agreements make it possible to execute a debt exchange that minority stockholders have criticized but that BFS executives have said is needed to help the company recapitalize.
In addition, BFS declared it will hold a special meeting of stockholders at 5 p.m. CT Dec. 14 to consider a plan in which it would distribute to current stockholders, at no charge, rights to buy up to 58.6 million shares of the company's common stock at a subscription price of $3.50 per share. The could bring in roughly $205 million in gross proceeds, BFS said.
The amendments to the support and investment agreements changed the trigger point at which the pacts would take place. Previously, at least 95% of the outstanding BFS Second Priority Senior Secured Floating Rate Notes due in 2012 had to be committed to an exchange. That threshhold was lowered to 90%. That change assures the deal will go through.
"As of Dec. 2, holders of approximately 90.35% of the aggregate principal amount of the 2012 notes have agreed to exchange their 2012 notes in the debt exchange, satisfying the minimum condition for completion of the recapitalization transactions," BFS said.
The amended support and investment agreements were with JLL Partners Fund and Warburg Pincus Private Equity. JLL formed BFS in 1988, and Warburg began putting money into the dealer in 2006. Together they hold 49.9% of BFS shares, control six of the 10 seats on BFS' governing board, and hold nearly a third of BFS' $319 million in long-term debt.
Under the support agreement, JLL and Warburg will get a mix of up to $145 million in newly issued Second Priority Senior Secured Floating Rate Notes due in 2016, up to $130 million in cash, and shares of the company's common stock if the rights isn't isn't fully subscribed. The investment agreement call for JLL and Warburg to buy no less than $75 million worth of rights.
Once all the deals are done, BFS expect to have an extra $75 million available for general corporate purchases and reduce its outstanding debt by $130 million.
JLL and Warburg have seen their investments rise and fall dramatically in recent years. In the first quarter of 2007, BFS stock traded for as much as $19.88 per share. By the fourth quarter of 2008, it was down to 82 cents a share. It opened today at $3.91 per share.
BFS CEO Floyd Sherman said recently that the company lost 8% of its market share during the third quarter 2009 due to an "extremely competitive pricing environment." The Dallas-based dealer had reported earlier a net loss of $15.9 million for the third quarter on a 29% drop in net sales to $188.9 million. BFS stood at No. 8 on the 2009 ProSales 100, with sales last year of $1.04 billion. Its 33.7% drop in sales from 2007 was the eighth-worst on the entire ProSales 100.
BFS recapitalization plan has been the subject of several class action lawsuits. The company announced its has reached an agreement to settle those suits, and a Dec. 23 hearing in Delaware Chancery Court is scheduled to consider the agreement. That hearing could be contentious, as an investment fund that holds 14.9% of BFS shares signaled--even before an agreement was signed--that it could fight the proposal. Stadium Capital Management of Bend, Ore., has argued that BFS doesn't need a recapitalization and that the changes are meant primarily to benefit JLL and Warburg.