Building Materials Holding Corp. (BMHC) took a huge step Thursday toward emerging from Chapter 11 bankruptcy-law protection when a federal judge approved the company's reorganization plan and gave the green light for it to make two deals that could reap $23 million in tax refunds for America's sixth-biggest LBM operation. BMHC then followed up today by asking a court to let it sell a Glendale, Ariz., property by Dec. 31 so it could reap another $973,665 in tax refunds. Soon after, the company announced it plans to exit Chapter 11 status on Jan. 4.
"With the court's ruling yesterday, we can now look forward to completing our balance sheet restructuring quickly," Robert E. Mellor, BMHC's chairman and chief executive officer, said in a statement issued Friday. "As a result of this process, we will be in a much stronger financial position, having reduced our outstanding indebtedness as of the filing date by approximately $150 million to $135 million upon emergence. In addition, we have streamlined our cost structure significantly and have secured exit financing of $90 million to support our ongoing operations and future growth. All of this puts BMHC in a solid position moving forward. We are excited about the long-term potential of our business and, based on the progress we've made, feel especially well positioned to take advantage of improvements in market conditions and future growth opportunities."
The ruling in Wilmington, Del., by U.S. Bankruptcy Judge Kevin Carey on the reorganization plan clears the way for Boise, Idaho-based BMHC to solicit a vote from claimholders regarding its recovery. Equally significant was Carey's approval of a motion to let BMHC sell its C Construction unit (better known as Ontario Framing, which operates in Southern California) and wind down its SelectBuild Illinois unit.
Both deals are prompted in part by 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.
"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. But it added that it could reap an additional $23 million in tax refunds if by Dec. 31 it could sell C Construction and wind down SelectBuild Illinois.
The potential for another tax refund check also figures in BMHC's filing today in which it sought clearance to sell to RBS Investments LLC a 10-acre property in a residential section of Glendale, Ariz., for just under $3 million. It reached agreement on the deal on Dec. 14 and said in its filing that the sale could lead to a tax refund of $973,665. BMHC hopes to get Carey's approval of the deal during a hearing on Dec. 30.
Besides approving the reorganization plan Thursday, Carey also signed off on a request that in effect has made it possible for BMHC to get what it says is better lending terms when it's out of Chapter 11. Prior to the NOL act passing, BMHC 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.