Builders FirstSource shares up on offering plans

Builders FirstSource Inc.'s shares rose Monday after the building supply company said that it is planning a debt refinancing.

THE SPARK: The Dallas-based company said Monday that it plans to offer $350 million of senior secured notes due in 2021. Along with the offering, it plans to enter into a new $175 million revolving credit facility.

Builders FirstSource plans to use the proceeds, along with cash on hand, to redeem $139.7 million of floating-rate notes and repay a $225 million loan, which includes a prepayment premium of approximately $39.1 million.

THE BIG PICTURE: Investors are pleased with Builders FirstSource's move as it would reduce the Dallas-based company's interest expenses. The company has been struggling with the costs from its debts and the pressure of the weak housing market on its performance. Investors see this, along with the improving housing market, as positive signs for the business.

THE ANALYSIS: Williams Financial Group analyst David N. Williams said in a research note that while the details of the deal aren't yet announced, he estimates it should cut the company's annual interest expense by about 43 percent, or $15 million a year.

The company's average weighted cost of debt was about 12.2 percent on existing debt before the deal. He estimates the new debt structure should cut its average cost of debt to about 6.7 percent, based on prior comments by management.

Williams said that in addition to significantly reducing the company's annual interest expense, the deal should also add about $110 to 120 million in additional liquidity. He said he expects the deal could add another 6 cents per share to its earnings in this fiscal year and 12 cents in 2014.

Based on his assumptions, the analyst anticipates the company may turn profitable this year and reiterated a "Buy" rating on its shares.

SHARE ACTION: Shares jumped 40 cents, a nearly 6 percent increase, to $7.10 by early afternoon on the news.

The company's shares, like those of many of its peers, were battered during the recession. Its shares, however, have been gradually recovering on improved housing market and economic news. The company's stock price has increased by more than 50 percent since this time last year.