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05 Apr 2011
Approximately $250 million of debt affected
New York, April 05, 2011 -- Moody's Investors Service assigned Caa2 Corporate Family Rating and Caa2
Probability of Default Rating to Builders FirstSource, Inc.
("BLDR"). In a related rating action Moody's
assigned a Caa2 rating to the proposed $250 million senior secured
notes due 2019. Proceeds from the notes issuance will be used to
refinance approximately $165 million of existing debt, to
pay about $14.5 million of debt repayment premium and related
fees and expenses with the balance used for general corporate purposes.
A speculative grade liquidity rating of SGL-4 is assigned as well.
The rating outlook is stable.
The following ratings/assessments were affected by this action:
Corporate Family Rating assigned Caa2;
Probability of Default assigned Caa2; and,
Senior secured notes due 2019 assigned Caa2 (LGD4, 59%)
.
The company is assigned a speculative grade liquidity of SGL-4.
RATINGS RATIONALE
The Caa2 Corporate Family Rating results from very weak operating performance
due to ongoing pressures in the residential new construction end market,
the primary driver of BLDR's revenues. Although some areas
within BLDR's primary geographic markets of North Carolina and South
Carolina may have some pockets of strength, overall, we do
not expect substantial improvement in new housing starts in 2011 relative
to 2010. The company's products are highly price sensitive
to competition and ongoing market conditions, making it difficult
for it to pass on substantial price increases. It is also exposed
to fluctuating costs associated with lumber, its major raw material,
adding to earnings volatility. For 2010, adjusted operating
margins are inadequate at negative 7.6% and free cash flow-to-debt
is insufficient at negative 15.3% (adjusted per Moody's
methodology). The company's inability to generate positive earnings
will result in very weak credit metrics for the foreseeable future and
will require cash to fund operating shortfalls.
We believe that BLDR's ongoing restructuring initiatives continue
to be insufficient, leaving its cost position untenably high at
current volumes. Notwithstanding efforts to rationalize its facilities
and reduce staff, BLDR's credit metrics remain untenably weak.
For example, Moody's projects, in a best case scenario,
that it will be a few years before the company is able to generate sufficient
free cash flow to cover (EBITDA - CAPEX)/interest expense at least
1.0 times (adjusted per Moody's methodology).
BLDR's SGL-4 speculative grade liquidity rating reflects
Moody's view that the company will need to use its cash on hand
to make up for anticipated operating shortfalls and its working capital
and capital expenditure needs. Assuming placement of the proposed
notes and extension of the company's revolving credit facility at
anticipated levels, cash on hand would be at least $195 million
on a pro forma basis. Combined with pro forma revolver availability
of about $40 million at FYE10, BLDR will have some financial
flexibility over the intermediate term.
The stable outlook is predicated on the successful syndication of the
proposed notes, leaving BLDR with no near-term maturities
and adequate liquidity of at least $235 million on a pro forma
basis at FYE10 to fund future cash shortfalls for the next few years.
Moody's does not anticipate favorable rating pressures over the intermediate
term until the company's end markets improve. BLDR needs
to demonstrate its ability to generate positive levels of earnings and
free cash flow, resulting in improved credit metrics and a better
liquidity profile. Over the longer term, (EBITDA -
CAPEX)/interest expense improving towards 0.75 times could result
in positive rating actions.
Moody's believes that BLDR's must preserve a certain level
of liquidity to maintain itself as a viable operating entity, limiting
its cash burn. While some cash on hand is expected to fund operating
shortfalls, combined cash on hand and revolver availability nearing
$100 million would indicate that operating losses are higher than
anticipated and would likely result in negative rating actions.
The Caa2 rating assigned to the proposed $250 million senior secured
notes due 2019, the same rating as the corporate family rating,
reflects their position as the preponderance of debt in BLDR's capital
structure. These notes will have a first lien on the company's
non-current assets and a second lien on its current assets.
The last rating action was on September 3, 2009, at which
time Moody's downgraded BLDR's Probability of Default Rating to
Caa3 from Caa1.
The principal methodologies used in this rating were Global Manufacturing
Industry published in December 2010, and Loss Given Default for
Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
Builders FirstSource, Inc., headquartered in Dallas,
Texas, supplies and manufactures structural and related building
products to homebuilders for the residential new construction and repair
and remodeling sectors in the United States. Its products include
prefabricated components, windows and exterior doors, lumber
and lumber sheet goods, millwork products, and other building
products and services. JLL Partners and Warburg Pincus (collectively
"Sponsors"), through their respective affiliates own
approximately 50% of BLDR. Revenues for 2010 totaled approximately
$700 million.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Peter Doyle
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Glenn B. Eckert
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns Caa2 Corporate Family Rating to Builders FirstSource, Inc.
No Related Data.
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