Metals USA uses bond buybacks, inventory management to drop net debt by $315 million in 2009

By Jennifer Lanning Drey

Portland, Ore., Feb. 1 - Metals USA Inc. reduced net debt by $315 million in 2009 through a combination of debt repurchases and inventory management, Lourenco Goncalves, chief executive officer of Metals USA, said Monday during the company's fourth-quarter and year-end conference call.

"As the capital markets suffered and bond values plummeted, we applied our excess cash holdings and bought back more than $200 million of our outstanding notes at substantial discounts," Goncalves said.

Following the reduction, Metals USA is "very comfortable" with its net debt position but will continue to pay down debt if possible, he said.

The company would also consider taking on additional debt in the future, Goncalves said during the question-and-answer portion of the call.

"We are ready to go public again. If we need to put another load of debt in this company later, down the road, long-term, we will if conditions warrant that," he said.

Year-end liquidity profile

Metals USA ended 2009 with $75.0 million drawn on its asset-based loan facility and excess availability of $122.9 million on the ABL at Dec. 31.

Responding to a question regarding the possibility of the company looking to extend the ABL facility, which matures in 2011, Goncalves said, "We have a lot of advance between now and then, and of course if nothing happens we would have to do it, but we would expect to be in a different environment and a different position at Metals USA and then take care of that at the right time."

The company had year-end total liquidity of $128.9 million and net debt of $462.3 million.

Its total debt of $468.3 million at year-end consisted of the $75.0 million outstanding on the ABL facility, $226.3 million of 11 1/8% senior secured notes, $161.1 million of senior floating-rate toggle notes due 2012 and $5.9 million of other long-term debt.

Metals USA is in compliance with all of its debt covenants, the company's chief financial officer, Robert McPherson, said during the call.

Q4 net sales, adjusted EBITDA decline

Metals USA reported fourth-quarter net sales of $245.3 million, down from net sales of $456.4 million in the same period of 2008. Adjusted EBITDA was $11.5 million for the fourth quarter, compared with fourth-quarter adjusted EBITDA of $19.1 million in the 2008 period.

In addition to providing opportunities to repurchase Metals USA's debt, Goncalves said the difficult business climate in 2009 was also a catalyst for cost reduction at the company. The CEO said that as a result, he believes Metals USA removed about $50 million of costs from the business that will not return in the future.

When asked about the possibility of the company looking to sell its building-products business, Goncalves said Metals USA is happy with the roofing portion of the building-products business but would manage against the least liability in the patio-products portion of it.

Metals USA is a Houston-based metals processor and distributor.

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