Building Materials refinancing expected to blow out as trends still to point to strong investor demand

By Sara Rosenberg

New York, July 21 - Building Materials Holding Corp.'s newly launched $300 million credit facility is expected to follow in the footsteps of other recently launched new deals, meaning there will probably be strong demand and not enough supply to go around.

The facility consists of a $125 million seven-year term loan B with an interest rate of Libor plus 325 basis points and a $175 million five-year revolver with an interest rate of Libor plus 250 basis points, according to a syndicate source.

Proceeds will be used to refinance the company's existing credit facility, which is scheduled to mature Dec. 1, 2004 and consists of a $110 million term loan A and a $190 million revolver. The existing facility has 13 banks participating in the syndicate group.

"I'm sure this will be a blowout. Existing lenders will recommit and any new lenders invited will jump on it," a fund manager said, explaining that market technicals are a big contributing factor to the expected success. "It's a fairly small term loan so it will probably be taken out pretty quickly."

Trends that have highlighted the strength of demand in the primary bank loan market have been noticeable over the past few weeks, including the selling of seven second-lien tranches in the institutional loan market as compared to none in 2001 and 2002; covenant-light structures such as the Westlake Chemicals' term loan B; reverse price-flexing or pricing at the tight end of talk; lower pricing in terms of the average Libor spread; increased appetite for middle market institutional tranches this year, which are usually shied away from since the deals are viewed as less liquid; and, increased amenability to deals with more aggressive debt multiples, according to a Banc of America Securities research report.

"They're doing a refi and they're coming up on their maturity date so they're kind of under the gun," the fund manager continued. "They're stock has traded off quite a bit in the past couple of weeks. That raises a question right there. On July 11 it was $15 and now it's $13.90.

"But the building materials sector has been kind of strong. Low interest rates have kept the sector strong. Look at Masonite. They reported and they had a solid quarter. I'd expect Building Materials would also, being that they're in the same sector."

On Monday, Masonite International Corp. reported financials for the second quarter ended June 30 that included an increase in earnings per share by 21.4% to $0.51, an increase in net income by 24% to $27.3 million, an increase in sales by 10% to $457 million, which is the highest quarterly revenue in company history, an increase in EBITDA by 10.3% and a debt to equity ratio of 0.8:1.0 as of June 30 as compared to 0.9:1.0 as at March 31.

Masonite is a Mississauga, Ont. building products company.

Wells Fargo is the sole lead arranger and bookrunner on the Building Materials deal, which was launched on Monday in San Francisco at 4.00 p.m. ET.

Building Materials is a San Francisco distributor of building materials and services.

Wells Fargo is also set to bring another deal to market this week - Kerr Group Inc.'s proposed $205 million credit facility, which is slated to launch on Thursday.

The facility consists of a $175 million seven-year term loan B with price talk of Libor plus 300 basis points and a $30 million five-year revolver, sources said.

Proceeds will be used to help finance the acquisition of substantially all the operating assets of Setco Inc. and Tubed Products Inc., both wholly owned subsidiaries of McCormick & Co. Inc.

The transaction is subject to the Hart Scott Rodino clearance and other customary closing conditions. Kerr and McCormick expect the transaction to close during the third quarter of 2003.

Kerr is a Lancaster, Pa. provider of specialty plastic closures and containers to the pharmaceutical, healthcare, and food and beverage industries.

Meanwhile, the secondary bank loan market was very quiet on this summer Monday, according to market sources.

"I haven't seen anything today. There's nothing really trading," a trader said. "It seems like Fridays and Mondays are quiet in the summer. It should pick up Tuesday, Wednesday and Thursday."

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