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Beacon Enters New Credit Facility

BECN

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Beacon Roofing Supply Inc. ( ">BECN )  has entered into a new five-year senior secured credit facility that includes a $550 million U.S. credit facility and a C$15 million ($15.1 million) Canadian credit facility with Wells Fargo Bank, National Association (WFC).

The $550 million U.S credit facility consists of a revolving credit facility of $325 million, which includes a sub-facility of $20 million for letters of credit and a $225 million term loan. The term loan has amortization of 5% per year that is payable in quarterly installments, with the balance due on March 31, 2017.

The credit facility also includes a C$15 million senior secured revolving credit facility provided by a syndicate of lenders. The company stated that it may also increase the credit facility by up to $200 million under certain conditions.

The credit facility refinanced the company’s prior $515 million credit facilities that were provided through GE Antares and an affiliate. The new credit facility’s interest rates are at historically low levels. Borrowings under the Credit Facility carry interest at a margin above the LIBOR (London Interbank Offered Rate). The margin will be 1.75% per annum at the beginning and can range from 1.50% to 2.50% per annum depending upon the company’s total leverage ratio.

Initial unused commitment fees on the revolving credit facilities are 0.375% per annum. The unused commitment fees can range from 0.35% to 0.50% per annum, again depending upon the company's total leverage ratio. Beacon Roofing paid back its prior-term debt of approximately $80 million and has additional cash and cash equivalents of approximately $85 million on its balance sheet pursuant to the closing and funding of the credit facility.

The credit facility is subject to customary restrictive covenants for credit facilities of this type relating to the operations and management of the company, which includes limitations on indebtedness, liens, investments, mergers and acquisitions, dispositions of assets, dividends and transactions with affiliates.

Beacon Roofing reported adjusted earnings per share (EPS) of 39 cents in the first quarter of fiscal 2012, way ahead of the Zacks Consensus Estimate of 29 cents, improving from the prior-year figure of 22 cents. Reported EPS excluded a tax benefit in the reported quarter, including which EPS stood at 41 cents compared with 22 cents in the year-ago quarter.

Net sales in the quarter increased 21% year over year to gross $489.9 million, outpacing the Zacks Consensus Estimate of $475 million. Organic growth in the quarter was 17.0%. Higher sales leading to elevated gross margins benefited the quarter. However, the positives were somewhat diluted by higher operating expenses and a steeper income tax provision.

Beacon Roofing continues to focus on cost controls to improve its margins. The company also remains active on the acquisition front. The company’s strategy is to buy market leaders in different geographic areas and thus expand into unexplored markets with untapped potential.

The new credit facility provides attractive LIBOR margin pricing, low interest rates, reasonable financial covenants, as well as substantial liquidity and financial flexibility for Beacon to pursue acquisitions and growth opportunities.

Currently, the shares of Beacon Roofing retain a Zacks #1 Rank (short-term Strong Buy recommendation).

Beacon numbers among the three largest roofing material distributors in the United States and Canada, with more than 90% of sales coming from the U.S. Beacon competes with privately held American Builders & Contractors Supply Co Inc., Guardian Building Products Distribution Inc. and Stock Building Supply Inc.

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