Private equity firm Wind Point Partners will use $216 million in bank debt and $72 million in preferred equity to fund its $287 million acquisition of United Subcontractors, a Salt Lake City-based company that installs insulation. Royal Bank of Scotland and Citigroup launched syndication of the loans at a meeting for lenders last Tuesday, said a banker. Officials at Wind Point and United Subcontractors did not return calls. The debt consists of a $30 million revolver, a $155 million first-lien “B” loan and a $26 million second-lien term loan, according to a banker. Pricing on the first-lien is LIBOR plus 3 1/4% and the second-lien lenders are being offered LIBOR plus 7%. The debt to EBITDA is 2.9 times through the first-lien, 3.4 through the second-lien and 4.1 total, the banker said.
“This acquisition is a strong statement from the fund managers that they believe the home market will remain strong for years to come,” said Paul Aran, a v.p. and senior analyst with Moody’s Investors Service, which has rated the first-lien debt B1 and the second-lien B3. Aran said United Subcontractors pride themselves on meeting promises made to builders for on-time delivery, and given the rate of home sales, companies that can deliver on time are highly appreciated. “Builders are willing to work with them,” he noted. Clients include eight of the top ten largest homebuilders.
Home sales in the U.S. have been strong, fuelled by low interest rates. The company’s EBITDA margin has been around 19.5% and is expected to remain near this level as long as home starts remain strong. But according to Aran, the company has a variable cost structure, so if a downturn were to occur USI’s cash flows would be better insulated during a downturn.