Business Context and Reporting Period
Company: BlueLinx Holdings Inc.
Filing Type: Form 8-K (Current Report)
Date: April 26, 2011
Event: Entry into a Material Definitive Agreement to commence a $60.0 million rights offering of common stock, fully backstopped by Cerberus ABP Investor LLC.
Key Financial Metrics
This filing does not report historical revenue, profit, cash flow, or margin data. The primary financial metric disclosed is the proposed capital raise:
- Target Proceeds: $60.0 million (gross).
- Subscription Price: The lesser of a discount to the average closing price (10 trading days prior to effectiveness) or $2.50 per share, with a floor of $2.00 per share.
- Backstop Commitment: Cerberus has agreed to purchase unsubscribed shares to ensure the $60.0 million minimum is raised.
Material Changes and Liquidity Initiatives
The rights offering is conditioned on the Company completing specific liquidity improvement initiatives involving amendments to existing debt agreements:
- Credit Agreement (Wells Fargo): The Company has reached an agreement in principle to amend terms to:
- Reduce required excess liquidity to the greater of $35 million or 15% of the borrowing base.
- Increase accounts receivable inclusion in the borrowing base to 87.5%.
- Increase inventory liquidation value inclusion to 90% for Jan-Mar 2012 and 2013 (subject to EBITDA targets).
- Include lockbox cash in excess liquidity calculations.
- Mortgage Agreement (German American Capital): Discussions have begun to:
- Eliminate lender approval requirements for equity transfers reducing Cerberus ownership below 51%.
- Allow prepayment without premium.
- Permit use of collateral cash for maintenance and operational expenses.
Outlook, Risks, and Contingencies
Conditions to Closing: The transaction is subject to the effectiveness of the registration statement, receipt of governmental consents, and the successful completion of the liquidity initiatives described above. The Outside Date for closing is the earlier of July 31, 2011, or 30 business days after the registration statement becomes effective.
Risks and Uncertainties:
- Failure to obtain necessary amendments to the Credit or Mortgage Agreements.
- General economic conditions and the state of the residential housing market.
- Availability of capital and residential mortgages.
- Competitive activities and operating expense variations.
Management Commentary: The Company states that the rights offering is intended to improve liquidity. Cerberus will also exercise its pro rata basic subscription rights but is restricted from over-subscribing.
Investor Verification Checklist
- Verify the effectiveness of the SEC registration statement for the rights offering.
- Confirm the final execution of amendments to the Wells Fargo Credit Agreement.
- Monitor the status of negotiations for the German American Capital Mortgage Agreement amendments.
- Check the final subscription price per share once the registration statement becomes effective.
- Review the preliminary prospectus (Form S-1) for detailed risk factors and use of proceeds.