"U.S. Chlorine Plants in January Run at Highest Rate Since August"

Bloomberg article.

Georgia Gulf Announces Notice of Redemption for 2016 Senior Subordinated Notes

"Georgia Gulf Corporation today announced that it has distributed a Notice of Redemption to the holders of the Company’s 2016 senior subordinated notes. The Notes will be redeemed on October 20, 2011, for $105.375 per $100 of face value. Based on amounts outstanding as of September 15, 2011, the Company will redeem an aggregate principal amount of $41.9 million of Notes."

Update on Georgia Gulf Corp (GGC)

Georgia Gulf announced an improvement in results over last year, 2nd quarter Adjusted EBITDA was $62.0 million compared to $59.4 million last year. During the call they gave the following guidance:

Based on our second quarter results and our outlook for the rest of the year and on adjusted EBITDA basis we believe we will be near the top of our 140 million to $160 million range that we communicated earlier in the year. For the full year we are planning capital expenditures of 45 to $50 million.

The current enterprise value of Georgia Gulf is about $1.2 billion. If they hit the high end of their guidance that is a EV/EBIDTA multiple of 7.5x.

Also, there was an interesting exchange during the Q&A on the call.

Sabina Chatterjee - BB&T Capital Markets
Okay and what's your internal forecast on housing starts from North America that's based into this EBIDTA guidance of 140 to 160.
Paul Carrico
For U.S. housing we were assuming something around 612,000 starts, basically 50,000 starts more than last year.
Sabina Chatterjee - BB&T Capital Markets
And then, Canada?
Paul Carrico
It is at 170.

That was all from the Seeking Alpha transcript.

Georgia Gulf Corporation (GGC) Annual Meeting To Be Held May 18, 2010

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Be Held May 18, 2010

Highlights of Georgia Gulf (GGC) Conference Call

From a Seeking Alpha transcript of the Q4 2009 Georgia Gulf (GGC) Conference Call:

• Going forward, our cash interest expense will be about $17 million per quarter and our quarterly GAAP interest expense should be in the $18 to $19 million range.
• The federal tax generated by the gain on debt exchange maybe differed for five years until 2014, then paid out over 5 years. On the third quarter call, I gave you a preliminary estimate of $75 million or $15 million per year. Since then we have continued to refine the estimate and we now believe we will pay a total of approximately $40 million or $8 million per year beginning in 2014. 
• Projecting 2010 adjusted EBITDA of $140 to $160 million

Georgia Gulf Corp (GGC) Reports 2009 Financial Results

First impression: I am not super impressed and I was able to sell a few hundred shares after hours before the bid was pulled.

The net income figures for 2009 are not really relevant or meaningful because of the restructuring that took place. What counts is the adjusted EBITDA of $161.5 million for 2009, compared to adjusted EBITDA of $163.1 million in 2008, and of $18.3 million for the fourth quarter of 2009, compared to $23.2 million of adjusted EBITDA for the same quarter last year.

Credit Outlook
Since I am mainly a GGC creditor and don't have a large exposure to the stock, the most important analysis from my perspective is the outlook for the notes. GGC paid off its bank loan during the fourth quarter by issuing $500 million of secured notes due in 2017. The notes I own (due 2013 and due 2016) both mature prior to the new 2017s.

As I observed previously, the refinancing of the bank loan with the 2017 note was really bullish for the other notes. The 2013 note is now more attractive thanks to its improved place in the capital structure, and the 2016 note also better thanks to its improved place in the term structure. Both still trade at yields above 10%, which is too cheap and still a buy in my opinion.

The current enterprise value is approximately $1.2 billion, so the EV/EBITDA multiple for 2009 is 7.4x. The ratio just through the debt is 4.4x, which is pretty healthy. Also, the 2008 and 2009 EBITDAs, which were roughly the same, were pretty "stressed out" given the macroeconomic situation and major restructuring that GGC went through.

Equity Outlook
Looks like interest expense is now about $90 million annual. So EBITDA-interest leaves roughly $70 million available for CapEx, taxes, and the equity. I would like to get some guidance on future CapEx, which was $63 million in 2008 and only $30 million last year. Will they need to make those cuts back up? In any case, the free cash flow to equity picture does not seem too impressive.

Reminder: Georgia Gulf Corp (GGC) 4th Quarter Earnings Release After Market Close

Press release

Georgia Gulf Corporation will release its fourth quarter financial results on Wednesday, February 17, 2010 after the market closes. The Company will discuss fourth quarter financial results and business developments via conference call and webcast on Thursday, February 18 at 10:00 a.m. ET.

To access the Company’s fourth quarter conference call, please dial 888-552-7928 (domestic) or 706-679-6164 (international). To access the conference call via Webcast, log on to http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=112207&eventID=2739500. Playbacks will be available from 11:00 AM ET Thursday, February 18, to midnight ET Thursday, February 25. Playback numbers are 800-642-1687 (domestic) or 706-645-9291 (international). The conference call ID number is 56505752.

Georgia Gulf (GGC) Closes Sale of 9% Senior Secured Notes due 2017

As I mentioned earlier they were priced to yield just about 9%.

The notes are senior secured obligations, rank senior in right of payment to all our existing and future debt that is expressly subordinated in right of payment to the notes, including our existing senior subordinated notes, and rank equally in right of payment with all our existing and future liabilities that are not so subordinated, including the ABL Revolver and our existing senior notes.

People buying the stock and gunning up the price the first few days of this week were buying the wrong part of the capital structure. Whoever bought the 7.25% of 12/15/13 (which is a senior note) today for 92.5 to yield 9.44% made the right move.

Short Georgia Gulf (GGC) Again

No reason for Georgia Gulf (GGC) to be shooting up right now.
Their bonds still have double-digit yields and are a better deal.
Sold some at 16.2 and going to sell more at 16.8 right now.

Georgia Gulf (GGC) Note Offering Priced Just Over 9%

The new Georgia Gulf (GGC) senior notes have a 9% coupon and were issued at a slight discount - 99.346% of their face value.

Georgia Gulf Corp (GGC) Looking Like a Short Again

Georgia Gulf (GGC) has rallied about 20% off of its lows since I started covering - closing today @ 16. I believe that is too high.

Meanwhile, you can still buy the GGC junior debt at 10-15% yields.

Georgia Gulf Corp (GGC) to Sell $500 Million Senior Notes

Georgia Gulf Corp (GGC) announced that it intends to sell $500 million of senior secured notes due 2016:

The Company intends to use the net proceeds from the offering of Notes, (i) to repay its existing senior secured credit facilities, (ii) to repay its existing accounts receivable securitization and (iii) to pay certain related transaction costs and expenses. The consummation of the offering of Notes will be conditioned upon the Company concurrently entering into a new senior secured asset based revolving credit facility, as well as other customary conditions.

The senior secured facilities have a balance of $320 million and I think the AR securitization is $97 million.

My involvement with GGC now is primarily as a bondholder. I consider this transaction neutral to positive: the amount of secured debt above me is not going up that much, and the maturities are being extended.

I think they should raise equity if they can at current prices. Selling $100 million stock and tendering for all the little bits of old notes plus putting cash in the bank would be a smooth move.

Finally

Yahoo Finance finally lists the correct market cap for Georgia Gulf (GGC) - $440 million.

For the longest time, they were overlooking the massive share issuance and dilution that took place as part of the bond exchange this summer.

I've spent months talking up GGC debt (i.e. the notes that remained after the bond exchange), and now the notes have rallied to pretty respectable levels. The most junior notes (the 2016s) have an ask price in the high 80s now. Not bad for paper that traded below 10 cents for much of this year.

What I'm Doing

With Georgia Gulf (GGC) down almost 10% today, I covered a bit more of my short that remained after taking off most of the GGC/OLN pair trade.

I suspect GGC will stabilize in the $10-15 range. If that is the case, the company should issue stock and de-leverage by buying up the remaining notes.

Georgia Gulf (GGC) 10-Q Gives Management's Perspective on Valuation

Here's an interesting tidbit from the recently released Georgia Gulf (GGC) Third Quarter 2009 Report.

In accordance with ASC subtopic 470-60, Troubled Debt Restructuring by Debtors this debt for equity exchange was a troubled debt restructuring and thus an extinguishment of the notes for which we recognized a net gain of $400.8 million. [...] This gain included $731.5 million of principal debt, net of original issuance discounts, $53.7 million accrued interest, $14.1 million deferred financing fees written off and $12.4 million of third party fees which was exchanged for the $357.9 million fair value of the common and preferred shares. The $357.9 million fair value of the common and preferred shares was estimated using a combination of discounted future cash flows, market multiples for similar companies and recent comparable transactions. In addition, the resulting fair value of the equity approximates $11.36 per share that was also evaluated relative to the public markets and determined to be reasonable.

Due to the fact that the determination of the fair value of the equity exchanged was primarily derived by projected future cash flows we evaluated the sensitivity of the major assumptions including discount rates and forecasted cash flows. A 100 basis points increase or decrease in the discount rate or a 10% increase or decrease in the annual forecasted cash flows results in an approximately $30.0 million increase or decrease in the estimated fair value of the equity exchanged.

So, management's calculation values the equity as $11.36. That's close to the $12.5 that I came up with at my most recent attempt.

Time to Unwind the Georgia Gulf (GGC) and Olin (OLN) Pair Trade

The Credit Bubble Stocks pair trade of GGC and OLN was posted at prices of $29 and $16.5, respectively. GGC has fallen to $15.65 and OLN to $15.79 as of right now, which were declines of 46% in the short and only 4% in the long. The pair worked brilliantly.

GGC's performance and adjusted EBITDA was better than I expected. Here are my thoughts on valuation.

I sold out all of my OLN and have covered about half of my GGC short. Normally, I would want to capture the additional downside that I foresee on GGC. However, I am being charged an enormous amount to borrow the stock.

I would not have covered if the huge spike rally at the open had continued all day, and I will probably reshort if it hits those levels again.

Taking a Look at the Georgia Gulf (GGC) Earnings Report

Georgia Gulf reported net income of $230.2 million for the third quarter of 2009. However, like sausage or legislation, you have to be very careful about what is going into this net income number.

Specifically: In the third quarter of 2009, Georgia Gulf successfully exchanged $736 million of its outstanding notes for 1.3 million shares of its common stock and 30.2 million shares of its convertible preferred stock. The debt exchange resulted in a $400.8 million pre-tax gain.

You really need to back out that gain for the numbers to make sense for valuation purposes. The $9 "earnings/share" number is a mirage.

Here are the Q3 numbers to focus on for now:
Operating income $38.6 million
Interest expense 30.7 million

A meaningful number is operating income minus interest expense: $7.9 million. This is EBT for the third quarter. That is $31.5 million annually if you multiply by four, which would be naive since Q3 is their big quarter. After tax we would be looking at about $20 million.

At $16, with a market cap of about $540 million, GGC trades at about 27x the high end of what I think are possible annual earnings. I would prefer to see a multiple of about a third of that (9x) which would put the stock at $5.33.

Asleep at the Switch: Georgia Gulf (GGC)

I think I know why Georgia Gulf (GGC) has flatlined this week: the bond funds are asleep at the switch. Everyone with a clue sold out on Friday.

This happens all the time.

Towards the end, Downey Financial (DSL), would release monthly non-performing asset (NPA) statistics which would always cause a selloff due to the"unexpectedly" sharp increases in NPAs. Credit Bubble Stocks created a model that mined California county recorder records to predict the NPAs in advance. We tried to sell these reports to the largest holders of DSL; funds that owned tens of millions of dollars worth the stock. Not interested. Asleep at the switch. No one disagreed with us. They just didn't care.

These funds have too much money and consequently hold too many positions. That's why they weren't interested in buying good intel on their $40 million dollar asset. Imagine not buying insurance on a $40 million dollar office building.

Fortunately, there are two near term catalysts for GGC that will roust these funds from their slumber!

Watch Out for Georgia Gulf (GGC) Earnings Tomorrow

After the big selloff on Friday when the registration statement for 30 million new Georgia Gulf (GGC) shares was approved, trading has slowed down, and the stock is hovering around 15.

It seems like some of the bond funds haven't decided to sell their new shares yet. But I see two catalysts for another sharp move lower in the stock.

First, GGC will be releasing third quarter earnings tomorrow at 5:00 PM ET. Competitors PPG and OLN both announced disappointing chlor-alkali results. I don't see how GGC could have done better. I do not expect GGC to meet management's 2009 EBITDA target, which would make it a stretch for GGC equity to be worth anything.

Second, I wouldn't be surprised if GGC attempts to issue stock. Raising equity at these prices and de-leveraging the company would make great financial sense. There are ~$40 million of the subordinated notes outstanding which they could buy at 15-20% yields.

What I'm Doing Today

-Sold more GGC at 15.6.
-Adding capital to my short YRCW / long U.S. Freightways 8.5% note due Apr 2010 trade - see the 8-K they just filed about an exchange offer.
-Looking at adding capital to my short REG / long REG-E trade.

I need to write more about the YRCW trade. Also I am reviewing the third quarter REG earnings and conference call and I'll be posting about it later.