Builders FirstSource investor Warburg Pincus suggests recapitalization

By Lisa Kerner

Charlotte, N.C., Sept. 1 - Builders FirstSource, Inc. investors led by JLL Partners Fund V, LP, an affiliate of Warburg Pincus LLC, asked the company's board of directors to consider a recapitalization proposal that they believe will create significant value for all company stakeholders, according to a schedule 13D/A filed on Tuesday with the Securities and Exchange Commission.

The company said it will form a special committee to consider the proposal to restructure its outstanding $275 million principal amount of second-priority senior secured floating-rate notes.

The investors, significant stockholders and holders of floating-rate notes, also proposed a $75 million rights offering by the company to existing stockholders at a subscription price of $2.00 per share.

JLL and Warburg Pincus would backstop the offer.

As part of the recapitalization, the approximately $98 million of notes owned by entities affiliated with JLL and Warburg Pincus would be exchanged for Builders FirstSource common stock valued at $2.00 per share.

JLL said under the plan holders of the remaining notes could elect to exchange each $1,000 principal amount of notes into either:

• $750 principal amount of a new debt security with a maturity of 2017 and an interest rate of Libor plus 750 basis points;

• Equity on the same basis as the JLL/Warburg Pincus notes; or

• A combination of stock and debt securities limited to no more than $40 million of new common stock and no less than $20 million of new common stock.

According to the investors, Builders FirstSource's total debt would be reduced by between $150 million and $172 million, depending on noteholder exchange and conversion participation.

Cash would be increased by approximately $75 million, minus fees and expenses, the filing said.

The recapitalization proposal is conditioned on approval by Builders FirstSource's special committee, stockholder approval of the issuance of shares and the participation of at least 85% in total principal amount of the notes not owned by JLL and Warburg Pincus in the exchange offer.

Warburg Pincus beneficially owns 9,055,392.5 shares or 25.1% of the Dallas-based builder products supplier. Together, JLL and Warburg beneficially own approximately 50% of Builders FirstSource's outstanding shares of common stock, a company news release said.

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