Headwaters to sell $150 million 10-year notes

By Paul Deckelman

New York, June 20 - Headwaters Inc. plans to sell $150 million of 10-year senior subordinated notes, using the proceeds to repay bank debt, junk bond market sources said Tuesday.

The deal will be presented to potential investors via a roadshow that begins Wednesday, with pricing expected in the middle-to-latter part of next week.

The notes will be sold under Rule 144A and Regulation S, with registration rights. They'll be non-callable for the first five years after issue and will also have the standard three-year, 35% equity clawback feature in their indenture.

Morgan Stanley will be the bookrunner for the deal. Co-managers include Canaccord Adams Inc., Stephens Inc., RBC Capital Markets and Wedbush Morgan Securities.

Headwaters, a South Jordan, Utah-based provider of products, technologies and services to the energy and construction materials industries, plans to use the net proceeds from the offering, plus a small amount of cash, to retire a portion of its senior secured credit facility.

Moody's Investors Service on Tuesday said that it has assigned a B3 rating to the bond issue, while also raising the rating on the company's senior secured first-lien credit agreements to Ba3 from B1, reflecting the improved ranking of the secured debt in the company's capital structure. Moody's further affirmed the existing B1 corporate family rating and said Headwaters' outlook remains stable.

Standard & Poor's, meanwhile, said Tuesday that it assigned its B subordinated debt rating to the new bond issue while placing the company's BB- senior secured bank loan and 2 recovery ratings on the $475 million of credit facilities on CreditWatch with positive implications, citing expectations that the note offering proceeds will be used to reduce the company's term loan. All other ratings, including the BB- corporate credit rating, were affirmed, S&P said, and the outlook is stable.

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