Fleetwood defers cvt pfd payment, still on track for exchange offer

By Peter Heap

New York, Oct. 30 - Fleetwood Enterprises, Inc. announced it will defer the next quarterly distribution on its 6% convertible trust preferred securities maturing in 2028 and said that given current market and economic conditions it expects to continue deferring distributions for at least the two following quarters. However Fleetwood also told Prospect News that its planned exchange offer for the convertibles is still on track and could be completed before the holidays begin.

The upcoming payment on the trust preferreds - which were issued through Fleetwood Capital Trust I - is due to be made on Nov. 15. Distributions can be deferred for up to 20 consecutive quarters. Fleetwood also said it will discontinue dividends on its stock after making the already declared Nov. 14 payment of four cents per share.

Together the two actions will "conserve cash and preserve liquidity for operations," Fleetwood said in a press release. Its total payments on the two sets of securities have been more than $5.6 million per quarter.

In June Fleetwood announced an exchange offer for the convertible preferreds, subsequently modified in August.

The company is still planning to go ahead with that transaction, Lyle Larkin, Fleetwood's vice president-treasurer, told Prospect News Wednesday.

However it first wanted to resolve some "potential covenant issues" with its bank lenders, Larkin said.

"We are in the final stages of negotiations on that," he continued, adding that the work should be completed "in the next week or two."

While not required for the exchange to go ahead, Larkin said: "We don't want it hanging over our head."

Once an agreement is reached with the banks, Fleetwood will move on to making the exchange offer, he added.

Allowing for the 20 business days over which the exchange offer has to remain open, Larkin said the transaction should be completed before the holidays.

The decision to defer distributions on the convertible preferreds was not tied to the exchange, Larkin added. He noted that Fleetwood will have the option of making distributions on the securities being offered in the exchange in common stock for the first two years.

According to the August amendment to its registration with Securities and Exchange Commission, Fleetwood will offer new convertible trust preferreds from Fleetwood Capital Trust II. The goal of the exchange is to "enhance" the company's balance sheet by reducing the liquidation amount of the outstanding securities, the company said in the filing. By doing so, it will have greater flexibility for future financing opportunities. The exchange is part of a larger set of transactions to reduce the company's debt and remedy covenants defaults.

Fleetwood has $287.5 million of the old 6% convertibles due Feb. 15, 2028 outstanding. For purposes of paying the SEC filing fee, the company registered $120 million of new securities for the exchange. However it did not specify what the terms of the exchange, nor did it specify the coupon.

It also registered a further $65 million of the new securities to be offered for cash. Proceeds from the cash offering will be used primarily to pay taxes incurred from canceling the old securities.

The new convertibles, like the old ones will make distributions quarterly and these will be deferrable for up to 20 consecutive quarters, although not during the initial two years when payment can be made in stock instead.

The current conversion price is $48.72 per share of common stock, a ratio of 1.02627 shares per convertible preferred. Fleetwood stock closed Wednesday at $10.02. The registration statement did not specify the conversion terms for the new securities.

The dealer manager for the exchange is Banc of America Securities.

Explaining the background to the Riverside, Calif. company's need to conserve cash, Larkin told Prospect News: "The RV industry is having to deal with a significant drop in consumer confidence and the manufactured housing industry has been in a slump for over two years. We want to make certain over the next two months we have sufficient resources in place over our slow period, which is the winter."

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