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Fletcher unveils $1.25B refinancing plan

Fletcher unveils $1.25B refinancing plan amid talks over lending breach with US noteholders

By Jonathan Underhill

April 17 (BusinessDesk) - Fletcher Building has unveiled a $1.25 billion refinancing plan to strengthen its balance sheet after extending talks with US noteholders over a breach of its lending conditions.

The Auckland-based construction and building products company is raising $750 million in an underwritten offer to shareholders at a deep discount and has arranged a $500 million standby facility with a group of banks. The standby facility can only be used to repay holders of its $1.1 billion of notes in the US private placement market. Costs to repay the USPP notes is estimated at up to $125 million, or a total of about $1.25 billion.

Fletcher also announced plans to sell its Formica and steel roofing tiles businesses after a strategic review, retreating to its main New Zealand and Australian markets.

Discussions with noteholders in the USPP market "are ongoing and Fletcher’s objective and expectation is that it will achieve a mutually acceptable outcome," it said. "While not expected to be needed, proceeds from the offer and standby facility are sufficient to redeem all USPP Notes and pay associated costs if required." It expects to reach an agreement with noteholders by May 31.

"Fletcher has got themselves into a lot of problems and they need to get out of them," said Paul Richardson, chief investment officer at Mint Asset Management. "The USPP holders, not surprisingly, are standing up for their rights."

Fletcher's stock has been buffeted the past week by rumours that the company has become a takeover target, with Wesfarmers reportedly among interested parties. Richardson said regulators may want to take a look at some of the speculation to ensure it hasn't amounted to market manipulation.

The pro-rata one-for-4.46 accelerated entitlement offer is at $4.80 a share, or 23 percent below its last trading price of $6.27. The stock was halted for the capital raising. Proceeds from the offer will be used to repay existing debt, the company said.

The stock sank to $5.74 on April 4, the lowest level in almost six years. It was as high as $11.14 in September 2016.

Fletcher said it has obtained a new $500 million standby facility that runs until at least January 2020 with ANZ Bank, Mitsubishi UFJ Financial Group and Westpac Banking Corp, and has obtained commitments "from the required majority of lenders to a permanent solution of the current breach under the syndicated facility agreement".

Following the share offer, Fletcher said it expects normalised leverage to reduce to 1.6 times, at the lower end of the company’s revised target range of 1.5 times to 2.5 times, it said. The offer comes as a result of the company's strategic review, undertaken by new chief executive Ross Taylor.

"While work remains to be done to complete the strategic review, the key principles have been approved by the board," the company said. "Fletcher Building will focus its activities on New Zealand and Australia, and will therefore undertake divestment processes for its Formica and Roof Tile Group businesses."

“An outcome of the work that we have completed to date on the group strategy is that it is now appropriate to strengthen our balance sheet," Taylor said. "Reducing our net debt also provides us with the opportunity to undertake divestment processes for Formica and the Roof Tile Group on terms that should maximise shareholder returns."

Formica and Roof Tile Group fall within Fletcher's international division along with its Laminex business in Australia and New Zealand. In February, Morningstar valued the international division at $1.36 billion and Formica alone at $730 million. The analytics firm suggested Formica would be a candidate for sale as a non-core asset. Fletcher paid US$700 million to buy Formica Corp from private equity owners Cerberus Capital Management and Oaktree Capital Management in 2007.

Fletcher reiterated its guidance for full-year 2018 earnings before interest and tax to be $680 million to $720 million, with the loss from its Building & Interiors unit affirmed at $660 million.

The institutional entitlement offer will be made today and tomorrow while the retail part of the offer will open on April 23.


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