THE DEAL: Building Materials finishes Chapter 11 construction

Date: 05-Jan-2010

by John Blakeley

Building Materials Holding Corp. has exited Chapter 11 protection under control of its senior
lenders.

The prenegotiated reorganization plan of the Boise, Idaho, company took effect Monday, Jan. 4,
according to papers filed with the U.S. Bankruptcy Court for the District of Delaware in
Wilmington. BMHC is a provider of building materials and construction services to homebuilders.

Under the debtor's second amended plan, confirmed Dec. 17 by Chief Judge Kevin J.  Carey of the
Wilmington court, Wells Fargo Bank NA and other senior lenders will receive all of BMHC's new
equity and $135 million in second-lien term debt in exchange for about $302 million in claims. BMHC
said in its plan that it could sell up to $50 million in real estate assets to pay senior lenders.
In that case, it ultimately would issue less second-lien debt as lenders are paid in full.

The new debt is subordinate to $90 million in first-lien exit financing from a group of lenders
including Wells Fargo Foothill Inc. and Davidson Kempner Capital Managemen t LLC.

At the time of BMHC's June 16 Chapter 11 filing, BMHC owed its senior lenders about $269 million on
a $340 million prepetition term loan, $20 million on a $200 million revolving line of credit, $11
million in accrued interest and about $6 million on a long-term swap liability. The total does not
include $113 million in open, but undrawn, letters of credit.

Since filing, BMHC has used at least $4 million from its $80 million debtor-in-possession loan from
Wells Fargo to pay down a portion of its revolver.

Unsecured creditors that voted in favor of the plan will share on a pro-rata basis the proceeds
from a liquidation trust. Unsecured creditors that voted against the plan will receive no recovery.

BMHC will fund the trust with $2 million in cash, down from $10 million in the original plan and $5
million in the first amended plan. BMHC scrapped a provision in its first plan that allowed
unsecured creditors, if they accepted the plan, to receive 50% of excess cash flow in any fiscal
year in which the Ebitda of reorganized BMHC exceeded $50 million. BMHC said in the plan that its
exit financing is "significantly more expensive" than it initially contemplated, leaving the
company with less cash to pay unsecured creditors.

The debtor did not estimate allowed general unsecured claims but said accepting creditors in the
class would recover about 4.4% on their claims.

BMHC will pay down the Wells Fargo DIP in full with the exit loan. The debtor will also use the
exit facility to fund potential near-term operating losses and provide for seasonal variances in
working capital.

The exit financing includes a $50 million revolver led by Wells Fargo Foothill and a $40 million
term loan from Davidson Kempner.

The three-year revolver is priced at LIBOR plus 500 basis points with a LIBOR floor of 2%. It
includes a $1.5 million up-front fee.

The term loan, meanwhile, matures in one year and is priced at LIBOR plus 800 basis points in cash,
with an additional 500 basis points paid in kind. The loan has a LIBOR floor of 3%. The loan carries a $1.6 million
closing fee.

BMHC had originally secured a $103.5 million exit financing led by Wells Fargo and Bayside Capital
Inc. The fully committed loan included a $50 million revolver and a $53.5 million term loan but
carried a higher rate and longer maturity (on the term loan) than the final financing from Wells
Fargo Foothill and Davidson Kempner.

BMHC's June 16 bankruptcy filing was the culmination of out-of-court negotiations that took more
than a year. The company, which manufactures and sells residential building materials such as wall
panels and floor and roof trusses under the trade names SelectBuild and BMC West, defaulted on its senior debt on Dec. 31, 2007.

After reaching several forbearance agreements with its lenders, BMHC finally hired turnaround shop
Alvarez & Marsal LLC in May 2008 to assist in a restructuring. The company explored a sale of its assets to no avail
then sharply reduced its workforce from a high of 23,000 to just 5,500 as of the bankruptcy filing.

Over that period, BMHC's sales declined sharply as the U.S. housing market collapsed. Revenue
declined from about $3 billion in 2006 to $1.3 billion in 2008, court filings show.

Michael Rosenthal, Matthew Kelsey and Aaron York from Gibson, Dunn & Cru tcher LLP are debtor
counsel. Sean Beach, Donald Bowman and Robert Poppiti Jr. of Young Conaway Stargatt & Taylor LLP
are co-counsel. Peter J. Solomon Co. is financial adviser.


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