KKR-backed Masonite files bankruptcy

Kohlberg Kravis Roberts has lost its $429 million equity stake in Masonite International, a Canada-based door maker that has filed for bankruptcy protection in the US and Canada.

The pre-packaged bankruptcy, in which the company has already reached agreements with its creditors before it files for Chapter 11, once approved will allow Masonite to reduce its outstanding debt from $2.2 billion to up to $300 million. Masonite’s annual cash interest costs would be cut by about $145 million. The company said a pre-negotiated bankruptcy could last from 90 to 120 days.

Masonite has “ lock-up agreements” of support for the restructuring plan from holders of more than 75 percent in principal amount of its senior secured obligations and more than 80 percent in principal amount of its senior subordinated notes due 2015, the company said in a statement.

Masonite, one of the largest makers of door and door parts in the world, plans to continue operations through the bankruptcy process.

Under the restructuring plan, the company’s senior secured obligations would be converted into a senior secured term loan of up to $200 million, a second-lien payment-in-kind loan of up to $100 million and/or 97.5 percent of the common equity of the reorganised company. The senior subordinated notes would be converted to 2.5 percent of the common equity in Masonite plus warrants for 17.5 percent of the common stock of the company.

KKR acquired Masonite in 2005 in a deal valued at C$3.1 billion, using $429 million in equity. At the time of the acquisition, Masonite was profitable, generating $107 million in profit in 2003 and $100 million for the first nine months of 2004.

The housing crisis in the US reversed Masonite’s fortunes, and last year the company began negotiations with lenders for waivers and forbearance agreements.

KKR has lost its equity investments in companies before. It lost about $500 million, as did the firm formerly known as Hicks Muse Tate & Furst, when Regal Cinemas went bankrupt in 2001. The two firms acquired Regal in 1998 in a deal valued at $1.5 billion, including the assumption of $290 million in debt.

Masonite is one of several KKR investments that have experienced turmoil in the current economic downturn, a problem plaguing many private equity portfolios. The firm’s publicly listed affiliate, KKR Private Equity Investors, said earlier this month that it had written down more than $1 billion of its investments as part of its year-end earnings report. The write-downs included a decrease of $164 million in value related to First Data; a decrease of $128.2 million on Alliance Boots and a decrease of $121.2 million in HCA.

KKR’s other publicly listed affiliate, KKR Financial, also reported a steep loss of $1.1 billion this month for the full-year 2008 and suspended its dividend.