U.S. Concrete Will Get Worse Unless Profitability Improves Capital Structure
Enterprise value is ~$320 million. At $1, the market cap is only $36 million. The bonds (8.375% due Apr 2014) trade at 55 to yield 26%. The bonds have rallied from 30 in March, despite the absence of much improvement in the company's financials. However, over the past month the bonds and stock have begun to slump substantially.
One good thing about the notes - there is not much debt senior to them. Just $16 million drawn on a senior secured facility that has $71.6 million of remaining capacity. There are $271.7 worth of notes outstanding (the company has bought some back).
Looking at RMIX, I am debating whether the notes are a good deal at 55, and whether the stock should still be shorted at this valuation. The market value of the notes plus senior debt is $163 million.
The notes are guaranteed by all subsidiaries, excluding Superior and minor subsidiaries. The notes restrict the company's ability to incur additional debt [limited to the greater of (1) borrowings available under the Credit Agreement, plus the greater of $15 million or 7.5% of our tangible assets, or (2) additional debt if, after giving effect to the incurrence of such additional debt, our earnings before interest, taxes, depreciation, amortization and certain noncash items equal or exceed two times our total interest expense.]
The company has $46 million in net working capital, mostly tied up in receivables and inventory. That is 11 cents on the dollar to the bonds after paying off senior debt.
EarningsConclusion
RMIX is over-leveraged. If the bonds were due sooner, it would be a bankruptcy candidate. They are a great candidate for a note exchange. Since they aren't in a rush - the notes don't mature until 2014 - they are in a decent negotiating position. It will only get worse unless their profitability improves.
If they were to offer, say 1000 shares, of stock per bond, or maybe a note due in 2019 at a lower rate but convertible at $2 or $3, they would probably get great participation from the type of people that participate in exchange offers.
This would allow management to focus on buying plants cheaply rather than selling them.
