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Duo Backs Apollo's LBO Of Metals USA

Credit Suisse First Boston and Bank of America last Tuesday launched syndication of a $450 million deal for Metals USA to back its leveraged buyout by Apollo Management.

Credit Suisse First Boston and Bank of America last Tuesday launched syndication of a $450 million deal for Metals USA to back its leveraged buyout by Apollo Management. The deal consists of a six-year, $450 million asset-based loan broken into a first-out tranche of $415 million and a last-out tranche of $35 million. The first tranche is priced at LIBOR plus 1 1/2% and the last-out tranche is priced at LIBOR plus 3 3/4%. Both have six-year maturities. The company also plans to issue at least $250 million of senior secured floating rate notes and/or senior secured fixed rate notes in a public offering. If it is unable to, CSFB, B of A and CIBC World Markets will provide at least $250 million in bridge loans, according to a proxy filed with the Securities and Exchange Commission.

Based in Houston, Metals USA processes and distributes metals in the carbon plates and shapes, flat-rolled products and building products markets in North America. The company agreed to be acquired by Apollo in May and the transaction was initially slated to be completed by the third quarter. The company is now anticipating a fourth quarter completion, although the merger is subject to various conditions that could affect the timing, the company writes in a SEC filing.

On Oct. 11, the company resolved a class action lawsuit brought against it and each of its directors in the Court of Chancery of the State of Delaware in New Castle County. The suit, a consolidation of two May lawsuits related to the merger, alleged the merger consideration to be paid to the stockholders was "grossly unfair, inadequate and substantially below the fair or inherent value of the company," according to a 10Q. It also alleged the directors of the company violated fiduciary duties by agreeing to the merger price in order to benefit themselves personally and financially and failed to engage in a fair sales process and invite other bidders, according to the filing.

Under the settlement, the plaintiffs' claims will be extinguished and Flag Holdings and Flag Acquisition -- affiliates of Apollo -- agree to waive, under certain circumstances, its right to receive any portion of the termination fee in excess of $13.6 million, about a 20% reduction of the termination fee. "We continue to deny that we engaged in any wrongful acts and entered into the settlement solely for the purpose of eliminating the burden and expense of future litigation," the company says in the 10Q. The proposed settlement is subject to final approval of the Court and the completion of the merger.

Under the terms of the agreement, company stockholders will receive $22.00 per share in cash. When the merger is completed, Robert McPherson, president of the building products group, will replace Terry Freeman as cfo, according to an 8K. CIBC acted as financial advisor to Metals USA and Jefferies & Co. provided a fairness opinion to the board of directors of the company, regarding the acquisition.

Calls to officials at Metals USA were not returned, nor were calls to Josh Harris, senior founding partner, at Apollo.

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