Bayou Steel Corp. is targeting a recapitalization that will fund a $35 million dividend to shareholders, including distressed specialist Black Diamond Capital Management. Credit Suisse First Boston is leading a $50 million "B" loan for the producer of merchant bar and light structural steel. The debt is rated B3 and is priced at LIBOR plus 7%.
Steven Oman, a senior v.p. with Moody's Investors Service, has described the company's financial policies as aggressive, "as evidenced by its willingness to erase essentially all the retained earnings the company has earned since emerging from bankruptcy."
The dividend will leave pro forma book equity of $4 million and pro forma debt of $93 million at a company that has generated negative $4.3 million of free cash flow since emerging from bankruptcy in July 2004.
"Do we need to tempt fate for the second time?" said Oman, who added that, "In their defense the steel markets are a lot better than when they filed. But we don't know how long these conditions will last." A lender added, "The steel markets have changed substantially and the markets should support this."
Richard Gonzalez, cfo of Bayou, did not return calls and a spokesman for Black Diamond could not provide comment by press time. A CSFB banker declined comment.
The company filed for bankruptcy in November 2003 with $140 million of debt and emerged in February 2004 after converting approximately $105 million of that debt into equity. Once out of bankruptcy the company had a $45 million revolver and $30 million of 9% first mortgage notes. In addition to the term loan, Bayou is increasing its revolver by $20 million to $65 million and refinancing the mortgage notes.