KKR loses $429m equity stake in Masonite

The mega-firm acquired Masonite in 2005 in a deal valued at C$3.1bn, using about $429m in equity. Masonite’s fortunes began to turn last year as the US housing market declined.

Kohlberg Kravis Roberts will hand over the keys to lenders for its Canadian door-parts maker Masonite International, wiping out its $429 million equity stake in the company.

Masonite said this week it had reached an agreement with a group of its senior lenders and a group of holders of its senior subordinated notes due 2015 to restructure the bulk of its $2.2 billion in debt, reducing its debt load to $300 million. The restructuring would require the company to make a “pre-negotiated” bankruptcy filing.

The debt reduction would reduce annual interest payments by about $145 million and “provide Masonite with greater liquidity and financial flexibility as it continues to take aggressive action to address challenges created by the downturn in the global housing and credit markets”, the company said in a statement.

The plan must be approved by all lenders involved with Masonite, and a firm date for the bankruptcy filing is not yet set, according to a spokesman for Masonite. The spokesman said KKR has helped to craft the restructuring plan.

The restructuring plan calls for the company's existing senior secured obligations to be converted into a new 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 a reorganised Masonite. Under the proposed plan, senior subordinated notes would be converted to 2.5 percent of the common equity in the company plus warrants for 17.5 percent of the common stock.

KKR acquired Masonite in 2005 in a deal valued at C$3.1 billion, using $429 million in equity, according to a filing the firm made with the Securities and Exchange Commission as part of its planned initial public offering. 

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 on its debt.

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

The firm’s other publicly listed affiliate, KKR Financial, also reported a steep loss of $1.1 billion Monday for the full-year 2008. The company, which invests in debt, said it would suspend its dividend through 2009.