Harvest Yields AMI Proceeds –

Harvest Partners recently completed a refinancing arrangement for its Associated Materials Inc. (AMI) portfolio company, resulting in a roughly 38% return for the investment group, which also maintained its control stake in the building products company.

Through an offering of senior discount notes, AMH Holdings, a newly formed holding company for AMI, will take in gross proceeds of roughly $258 million. The company will use that to redeem $177.5 million of preferred stock and distribute a $59 million cash dividend to shareholders. Management will receive a $15 million bonus as well, while the balance of the proceeds will cover fees and expenses. Upon the news, Moody’s Investors Service assigned a Caa1 rating on the proposed senior notes, and confirmed its existing ratings on all other AMH debt. The firm would not comment on which bank will underwrite the offering.

“In all, this will return about $230 million back to the investor group,” Harvest Senior Managing Director Ira Kleinman said. “This was attractive to us because there is no current pay requirement [for the first five years], so it really gives the company some flexibility.”

Harvest originally acquired Associated Materials in April 2002, taking the business private in a $436 million transaction. The firm took on additional co-investors, teaming with Weston Presidio, and in all, the investor group put an equity sum of $169 million into the investment.

AMI is a manufacturer and distributor of exterior residential products, and is primarily focused on vinyl and aluminum windows and siding. The company last year acquired Gentek Holdings from Genstar Capital in a $118 million deal. For 2003, AMI reported pro forma EBITDA of $101.7 million, which includes the Gentek acquisition, on revenue of $969.9 million.

“There has been a combination of things helping us along,” Harvest Vice President Christopher Whalen said. “The low interest rates have certainly contributed, but probably one of the main drivers is the company’s focus on the remodeling end of the [building products] market,” which, he said, makes AMI less exposed to the cyclicality in the homebuilding industry.

Going forward, Harvest is not yet thinking about where it will find its exit, although the firm does not foresee the company returning to the public markets. Kleinman said, “This recap allows us to return some money to our limited partners, but more importantly gives us the opportunity to continue growing the company. We haven’t thought a lot about exiting the investment, but I’m not sure the public markets will provide the best option.”

The building products industry has seen quite a bit of private equity interest in recent years. Caxton-Iseman Capital, Kelso & Co., Investcorp and Kenner & Co., among others, have all made fairly significant buyouts in the space.