TEXT-S&P revises Builders FirstSource outlook to positive

Overview
-- Operating conditions at U.S.-based building products manufacturer
Builders FirstSource Inc. are improving, and we expect it to post positive
annual EBITDA for the first time since 2007, albeit at a low level.
-- In our view, this distributer still has high levels of expensive debt
and we do not expect EBITDA to fully cover interest costs this year.
-- We revised the outlook to positive. We affirmed our 'CCC' corporate
credit rating and affirmed our 'CC' issue rating on Builders FirstSource's
$140 million of second lien notes due 2016.
-- The positive reflects our expectation that improved profitability will
better position the company to refinance some of its expensive floating rate
debt.

Rating Action
On April 24, 2012, Standard & Poor's Ratings Services revised its outlook on
Dallas-based Builders FirstSource Inc. to positive from negative.

At the same time, we affirmed our 'CCC' corporate credit rating on the company
and affirmed the 'CC' issue rating on its $140 million of second-lien notes
due 2016.

Rationale
The outlook revision reflects our assessment that Builders FirstSource's
operating conditions are improving such that we now expect the building
products manufacturer and distributor to post positive annual EBITDA for the
first time since 2007, albeit at very low levels. In our view, improved
profitability will better position the company to refinance some of its
expensive floating rate debt and possibly close its interest coverage
shortfall over the next 12 months.

Our rating continues to reflect our assessment of the company's business risk
as "vulnerable" and its financial risk as "highly leveraged". Our vulnerable
business risk opinion acknowledges that demand for the company's products is
highly cyclical and is only beginning to recover from very weak levels. Our
highly leveraged financial risk assessment reflects a very heavy debt burden
with high interest costs.

Under our baseline scenario we expect EBITDA to be slightly positive in 2012,
for the first time since 2007. We expect EBITDA to improve further to about
$35 million in 2013. Despite this meaningful improvement, leverage would
remain high (near 10x when adjusted for operating leases) and EBITDA would not
fully cover interest expense. Our baseline forecast reflects the following
assumptions:

-- Revenues increased 20% and 35% in 2013 (to over $1.2 billion), in line
with our forecast for U.S. housing starts;
-- Gross margins hold steady at about 22% and EBITDA margins to turn
positive as overhead costs are spread over a larger revenue base; and
-- Book debt holds steady at $300 million with a weighted average cost of
12% (based on spreads over LIBOR floors).

Liquidity
We view Builders FirstSource to have a "less-than-adequate" liquidity position
based on the following observations and estimates:

-- Current available cash holdings are sufficient, in our view, to cover
uses by at least 1.2x over the next 12 months;
-- In our opinion, 2012 cash balances are expected to remain above the
$35 million minimum cash requirement under the terms of its first-lien term
loan; however
-- Our view of qualitative criteria factors including the likely ability
to absorb high-impact, low-probability events preclude an "adequate" liquidity
assessment at this time.

Liquidity consists primarily of an estimated $112 million in available cash
after adjusting for a minimum $35 million cash requirement under the terms of
its first-lien term loan. Under our baseline scenario for 2012, we expect
Builders FirstSource to post a $60 million to $70 million in operating cash
flow deficit after working capital and other cash outflows, but to end the
year with a cushion of at least $40 million above the $35 minimum cash
threshold.

Builders FirstSource repaid $20 million of borrowings and terminated its
revolving credit facility in December 2011 after it obtained a $160 million
first-lien term. It also obtained a $20 million letter of credit facility.
Both agreements mature in September 2015. There are no other significant debt
maturities before then and the company is not subject to leverage or coverage
covenants.

Recovery analysis
For the complete recovery analysis, see our recovery report on Builders
FirstSource to be published following this report on RatingsDirect.

Outlook
The positive rating outlook reflects our expectation that operating
improvements will accelerate in line with our forecast for higher housing
starts and that Builders FirstSource will likely be in a better position next
year to refinance some of its expensive floating rate debt and possibly close
its interest coverage shortfall.

We would upgrade our corporate credit rating if operating improvements closely
track our baseline assumptions over the next year and we viewed it likely that
Builders FirstSource would soon generate sufficient EBITDA to fully cover its
interest costs on a sustainable basis. An upgrade would be further supported
if improved operations and accommodative credit markets enable the company to
refinance some of its expensive variable rate debt at a lower cost.

While less likely over the next 12 months given the company has no near-term
maturities and our growth assumptions, we would lower our rating if the
housing market recovery stalls and Builders FirstSource posts larger than
expected operating cash flow deficits such that cash holdings dropped close to
the $35 million level required under its first-lien term loan agreement.

Related Criteria And Research
-- Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Sept. 28, 2011.
-- How Standard & Poor's Uses Its 'CCC' Rating, Dec. 12, 2008.
-- Key Credit Factors: Business And Financial Risks In The Global
Building Products And Materials Industry, Nov. 19, 2008.

Ratings List
Ratings Affirmed; Outlook Revised To Positive
To From
Builders FirstSource Inc.
Corporate Credit Rating CCC/Positive/-- CCC/Negative/--
Senior Secured CC
Recovery Rating 6