AMH Holdings to price $258 million proceeds 10-year discount note deal late in week

By Paul Deckelman

New York, Feb. 20 - AMH Holdings Inc. announced plans on Friday to sell $258 million proceeds of senior discount notes due 2014, with a short roadshow slated to begin on Monday and pricing likely Thursday or Friday.

UBS Investment Bank will be the sole underwriter on the Rule 144A deal.

AMH plans to use the proceeds of the upcoming deal to redeem $177.5 million of its holding company preferred stock, distribute a $59 million cash dividend to shareholders and pay a $15 million special bonus to management, for a total of $251.5 million. Remaining proceeds are to be used to cover fees and expenses associated with the bond offering, estimated to be around $7 million.

AMH is the parent company of Cuyahoga Falls, Ohio-based Associated Materials Inc., a maker of vinyl, aluminum and steel siding, as well as vinyl windows, fencing, decking and railings.

Associated Materials last tapped the junk bond market in April 2002, with a $165 million issue of 9 ¾% senior subordinated notes due 2012 (B3/B), which were issued at par via joint bookrunning managers Credit Suisse First Boston and UBS. Proceeds were used to partially fund the buyout of the company, then based in Dallas, by Harvest/AMI Holding, Inc.

It turned to the bank loan market for a $260 million senior secured credit facility (Ba3/B+) last August via joint lead arrangers UBS and CSFB to fund its $118 million acquisition of Gentek Holdings Inc. and repay the latter's debt. The company amended and enlarged its then-existing credit facility into a $70 million revolver and a $190 million term loan facility.

Even though the deal is for holding-company level paper, which will be structurally subordinated to Associated Materials' operating company-level debt and the pricing is likely to reflect that, the two companies' chief financial officer, Keith LaVanway, told Prospect News that AMH is "definitely optimistic" about the new deal's prospects, especially given the notable spread tightening seen in the debt markets since the company's last bond deal nearly two years ago, and given what he called "extremely strong" earnings reported by Associated Materials on Friday.

"The market is good, and the company has done pretty well over the last two years, very well," he said, in assessing the likely reception that the new deal will get from investors. "We're definitely ready to go [this upcoming] week."

In an 8-K filing with the Securities and Exchange Commission on Friday, Associated Materials reported net income for the year ended Jan, 3 2004 of $24.5 million, EBITDA of $85.4 million and sales of $779.8 million. The filing did not include comparative year-ago figures.

Pro forma net combined earnings for the period, including those of Gentek, which became a part of Associated Materials when the acquisition closed in late August, totaled $28.2 million; consolidated EBITDA was $94.2 million, and combined sales $969.8 million.

Standard & Poor's on Friday affirmed Associated Materials' B+/stable corporate credit rating, while assigning parent AMH Holdings' prospective new issue a B- rating. S& P said Associated Materials' ratings "reflect its position as a medium-sized manufacturer of exterior residential building products and exposure to volatile raw material costs, cyclical end markets, higher overhead costs than many competitors, and a very aggressive financial profile."

Moody's Investors Service assigned the new AMH deal a Caa1 rating, while confirming Associated Materials' Ba3 rating on its senior secured bank debt, B1 senior implied rating, B2 issuer rating and B3 rating on Associated Materials' existing senior subordinated notes. The ratings for both companies are stable, Moody's said, reflecting the agency's expectations that Associated Materials "will continue using its excess cash to pay down its bank debt and bring debt leverage closer to historical levels." The Moody's action affects a total of $633 million of debt.

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