JLL, Warburg recapitalise building supplier

The private equity firms plan to back stop a $75m rights offering and exchange $98m of debt for equity in Builders FirstSource, the US' second largest supplier of building products.

JLL Partners and Warburg Pincus will help recapitalise struggling US building supplier, Builders FirstSource, by backstopping a $75 million rights offering and exchanging $98 million of debt for equity.

The deal also would allow holders of the company’s remaining debt to exchange each $1,000 of the principal amount of their holdings for $750 of principal amount in new notes, due to mature 2017 with an interest rate of 7.5 percent. Alternatively, the holders of old debt could exchange their holdings for equity, or a combination of equity and new notes.

The deal is expected to reduce the company’s debt by between $150 million and $172 million and increase cash by $75 million.

“With less debt and more cash on its balance sheet, the company will have greater financial flexibility and an improved credit profile,” the firms said in a joint statement. “Following the proposed recapitalisation, JLL and Warburg Pincus believe the company will be well-positioned to participate in a recovery of the housing market.”

Builders FirstSource, which makes residential construction products, reported in July it had lost about $53 million in the six months ended 30 June, 2009, and about $23 million in the three months ended 30 June, 2009. The six-month loss of $53 million is down from a loss of about $62 million during the same period last year.

The company is appointing a special committee of its board of directors to consider the proposal and negotiate further, if necessary. The deal must be approved by the special committee, shareholders and debt holders.

Warburg Pincus and JLL are not looking to sell their stakes in the company, according to the statement. The firms acquired stakes in the company in 2006. According to Reuters, the firms combined hold a 57 percent stake in Builders FirstSource.

JLL has been locked in a public bidding battle with Swiss chemical group Lonza over Canadian drug maker Patheon. JLL is majority shareholder in the company, but its $2 a share offer to buy the company was trumped by Lonza, which offered $3.55 per share, or $450 million.

JLL, which owns 57 percent of the company, has announced publicly it has no intention of selling the company in the current environment, even though a group of Patheon investors has said it is amendable to a Lonza deal.