Building Materials Holding Corp. (BMHC), galvanized by the opportunity to reap more than $73 million in tax refunds, pushed its request for judicial permission to shed two subsidiaries while it revealed a new financing plan that would enable it to emerge reorganized from Chapter 11 bankruptcy-law protection.
Several filings and planned actions this week indicate BMHC, America's sixth-biggest LBM operation, seeks to collect the most money possible from recent legislation that lets a company apply current losses to profits in previous years. The previous limit on Net Operating Loss (NOL) carrybacks, as the prevision is known, was two years. The recent change pushed it to five--a significant shift for many building material companies, given the prices they paid for acquisitions and the amount of profits they earned in the middle of this decade.
BMHC estimates it can recoup as much as $82.2 million in cash relating to taxes paid in 2004 and 2004. "Solely as a result of net operating losses sustained from continuing operations in 2009, [BMHC] will be able to realize approximately $50 million of tax refunds by virtue of the 2009 Act," the company said in a filing to U.S. Bankruptcy Court in Wilmington, Del., where it entered Chapter 11 in mid-June.
However, BMHC adds, it can reap an additional $23 million in tax refunds if by Dec. 31 it could complete two transactions: the sales of its C Construction unit (better known as Ontario Framing, which serves Southern California) and the winding down of its SelectBuild Illinois operation. A filing today by BMHC chief administrative officer Paul S. Street cited business and tax reasons for both deals, while a similar filing by Bradley Dietz, head of the restructuring group at Peter J. Solomon Co., spoke up for the Ontario Framing deal.
Also today, U.S. Bankruptcy Court Judge Kevin Carey approved BMHC's request to shorten the usual 21-day notice time required to consider a motion to reimburse certain expenses and indemnity agreements. Now Carey plans to hold a hearing on this issue Friday.
The quick action was needed because BMHC seized on the potential tax refunds as a new way to help finance its exit from Chapter 11. Prior to the NOL act passing, it had intended to emerge from Chapter 11 with $80 million in exit funding that it had secured. But then the new tax legislation "opened up the possiblity for an alternative approch to exit financing for the debtors," BMHC said in a filing made on Monday. However, "some of the key lenders in the Old Exit Financing"--apparently a reference primarily to Wells Fargo Bank--"reacted negatively to this prospective deleveraging of the company by imposing more hurdles to the ability to reach closure on reasonable terms."
BMHC said the lenders refused to provide covenant relief directly related to "the closures of two business units that contribute to the amount of the federal tax refund." That's probably a reference to C Construction and SelectBuild Illinois. In addition, the lenders set several other terms that would have required it to shell out money to the exit funders if BMHC got the tax refunds.
BMHC said it now has obtained new exit financing consisting of a $50 million revolving credit facility and a $40 million term loan. "The New Exit Financing has a lower overall cost and contains less restrictive financial covenants than the Old Exit financing," BMHC's filing said. "In addition, the debtors anticipate that it will be easier to work through any future issues." But to make the deal work, BMHC has agreed to pay certain fees to one of the new lenders, and getting permission to do that is what led to Carey's order shortening the time to consider the request.
BMHC--the No. 6 dealer on this year's ProSales 100, with total sales in 2008 of $1.3 billion--has said regularly that it hopes to emerge from Chapter 11 by year-end. On Nov. 19, a federal bankruptcy judge issued an order giving BMHC a three-month extension of its exclusive rights to offer a reorganization plan and solicit approval for that plan to exit from Chapter 11 bankruptcy-law protection. The action means BMHC now has exclusive rights through Jan. 12 to propose a reorganization plan and through March 15 to solicit acceptances of that plan.