Following weak endorsements from two major credit rating agencies, Builders FirstSource (BFS) has abandoned plans to offer $250 million worth of senior secured notes due 2019 and update its senior secured revolving credit arrangements.
"Given our current liquidity position of over $115 million, and given that our current revolving credit facility will not expire until December 2012, this proposed financing transaction was opportunistic in nature," BFS said last month as part of its latest quarterly earnings report. "The transaction terms being suggested by the market were not acceptable to us, and as a result, we have decided not to move forward with this transaction."
BFS had announced its plans on April 4, saying it would use the $250 million generated in part pay off similar notes that fall due next year as well as in 2016. But the next day, both Moody's and Standard & Poor's issued relatively low ratings to those notes.
The aggregate $250 million in senior secured notes were to be secured by a first-priority lien on certain non-current assets and a second-priority lien on certain current assets. The senior secured revolving credit facility is secured by a first-priority lien on certain current assets and a second-priority lien on non-current assets. Along with paying off its 2012 and 2016 notes, BFS also planned to use the $250 million for working capital and general corporate purposes, the company said.
The company's general weak operating performance and what Moody's regarded as "insufficient" restructing initiatives led Moody's to put a Caa2 rating on BFS' corporate family rating; obligations rated "Caa" represent a very high credit risk. Moody's also assigned the company a speculative grade liquidity of SGL-4, which it said denotes weak liquidity and few prospects for obtaining outside financing.
Meanwhile, Standard & Poor's affirmed its CCC+ corporate credit rating on BFS with a negative rating. It also assigned a CCC rating to the $250 million notes due 2019. "The recovery rating is '5', indicating our expectation of modest (10% to 30%) recovery for lenders in the event of a payment default," S&P said."
BFS ranks 10th on the most recent ProSales 100 and has since moved to No. 9 because of a merger higher up. It serves builders across the Southeast, from Maryland to Florida to Texas. Historically it has focused on serving America's biggest homebuilders, but CEO Floyd Sherman said in February that focus is shifting to include remodelers and smaller builders.