Thursday, February 18, 2010

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.

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