Bayou Steel signed a $50 million revolving credit facility with Congress Financial Corp., replacing a $40 million deal that was due to expire this month. The new deal provides liquidity for a company with negative cash flow, said Richard Gonzalez, cfo. "The facility is larger because we have inventory and receivables to support that. We went for more money to give us more flexibility," he said. Bayou Steel, based in LaPlace, La., operates a steel mill and a stocking warehouse on the Mississippi River.
Gonzalez said the company has developed strategies to maintain itself during a "terrible" time in the industry. "Considering that we can't control the sell price or market, we've just worked to reduce our costs and improve our efficiencies." Still, he said he found the market excellent. "We had nine proposals, and we could've lived with four or five," he said. Pricing on the new deal is LIBOR plus 2%, as opposed to LIBOR plus 2 1/2 % on the former deal.
J.P. Morgan Chase, which led the former deal and has worked with the company for the past 12 years, opted not to bid for the replacement facility because the company is cash-flow negative, said Gonzalez. "Our cash flow was such that it didn't fit the traditional model that Chase was looking for," he said, adding that the new line has no cash flow covenants and is asset-backed. "Congress offered the most attractive economics and excellent references." The deal did not go out to syndication.