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Related Issuers
Rating Action:

Moody's assigns Caa2 Corporate Family Rating to Builders FirstSource, Inc.

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.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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​
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