Eagle Materials delays its aggregates business split as COVID-19 virus crisis continues

US building materials group Eagle Materials has announced, in a statement released to the New York Stock Exchange (NYSE) this week, that it is delaying the separation of its aggregates division.

The company says: “Today’s market conditions caused by the COVID-19 pandemic have affected the company’s previously announced timeline to separate its heavy (cement, aggregates and concrete) and light-side (gypsum wallboard and paperboard) businesses.”

Previous deadlines now look impossible to achieve: “Eagle Materials remains committed to the separation,” says the statement, “and reaffirms that the strategic rationale for the separation is unchanged, although the timing for the expected completion of the separation has become uncertain.

“The company will continue its preparation to ensure that the two businesses are well-positioned for the separation when the markets recover.”

To keep the financial base as stable as possible, Eagle says: “The company is taking prudent and precautionary actions to maintain its financial flexibility.

“We recently took several actions to reduce our spending and maximize free cash flow, including limiting capital spending to critical maintenance, safety and regulatory projects and managing the timing and duration of our maintenance programs.

“We also amended our bank credit facility and term loan to extend the maturity to August 2022 from August 2021 and increased the leverage ratio requirement to 4.5x debt-to-EBITDA with no step downs through the maturity date.

“We are also well-positioned to manage expenses in the face of potential demand impacts from COVID-19 given that a majority of our cost of goods sold is variable in nature.”

According to the NYSE statement: “At March 31, 2020, we had total liquidity of approximately $295 million ($115 million of cash on hand plus $180 million of bank revolver availability) with no near-term debt maturities.

“Our liquidity position will be further enhanced by the recently enacted CARES Act which will enable us to utilize the tax asset generated by the Kosmos acquisition and carry it back to recover taxes paid in prior years at higher tax rates.

“We anticipate that this modified NOL treatment will generate a tax refund of approximately $100 million.”

There will also be a focus on debt reduction.

According to Eagle president and chief executive Michael Haack: “As our nation reacts to COVID-19 and the large-scale effort to contain it, we remain focused on navigating the crisis, keeping our employees and their families healthy, serving our customers as an essential business, and protecting the financial stability of Eagle during these uncertain times.

“These steps are part of a broad array of internal actions we are taking to manage our cash flow and to be prepared in light of these conditions.

“Just as we entered this environment in a strong financial position, we are taking immediate actions to reduce expenses and manage liquidity so we can maintain strong financial footing as we move forward beyond it.”

The group states very clearly in its NYSE message that: “We have taken actions to protect our employees and to focus on business continuity and improve our financial flexibility.”

The company is working hard to “limit our employees’ potential exposure, including implementing policies and practices that are consistent with or exceed CDC and government guidelines, restricting visitor access to facilities, enforcing social distancing protocols and undertaking additional, rigorous facility-cleaning procedures.”

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