Fleetwood $80 million convertible talked at 5.0-5.5% yield, up 20-24%

By Ronda Fears

Nashville, Dec. 15 - Fleetwood Enterprises Inc. launched an $80 million offering of 20-year convertible notes talked to yield 5.0% to 5.5% with a 20% to 24% initial conversion premium. Proceeds are earmarked to repurchase portions of the company's 9.5% and 6% convertible preferreds.

Lehman Brothers is bookrunner of the 144A deal, which is scheduled to price after the close Wednesday.

The senior subordinated debentures will be non-callable for five years with puts in years five, 10 and 15.

There is a 120% contingent conversion trigger.

The issue is expected to be rated B2 by Moody's Investors Service and BB- by Standard & Poor's.

A $20 million greenshoe is available.

The Riverside, Calif.-based manufactured housing and recreational vehicle sales company will use proceeds to repurchase or redeem a portion of its 6% and 9.5% convertible trust preferreds.

Last week, the company reported fiscal second-quarter net income of $3.8 million, or 10 cents a share, versus $4.6 million, or 13 cents a share, a year before. Sales were up 5% to $674.7 million. RV sales increased 14% while trailer sales declined 8%. Operating income declined 2.9% in the RV group while operating income in the manufactured housing group gained to $6.2 million from $2.5 million.

Fleetwood said fiscal third quarter is seasonally slow and warned it expects to report a loss for the period, although probably smaller than a year ago. Fleetwood said it expects to return to profitability in fiscal fourth quarter.

"We are pleased that our manufacturing division continued to be profitable, despite another significant drop in sales," said Edward Caudill, chief executive of Fleetwood, in the company's earnings release.

"There are encouraging developments in the manufactured housing financing environment, which included U.S. Bank starting to provide retail financing in October, and we are seeing a continuing decline in the number of repossessed houses on the market. This leads us to believe that calendar 2004 will show improvement over 2003 for the entire industry."

To counteract the "unprecedented downturn" in the manufactured housing industry over the past few years, Fleetwood has trimmed its operations to meet decreased demand, reduced costs by consolidating purchasing and pursued vertical integration by establishing HomeOne Credit Corp. to provide retail financing.

"There's no doubt that we are gratified to report positive results for the quarter, but we're hardly satisfied with our performance," Caudill said.

"With the encouraging signs from the manufactured housing lending community and excellent dealer reception of our RV products at the Louisville, [Ky.,] show, we believe we will build on the solid momentum Fleetwood has achieved going into calendar 2004."

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