JB Poindexter’s proposed tack-on provides the company with a liquidity cushion as it looks to grow two of its largest segments, Morgan and Morgan Olson, according to three sources following the company. The company is also riding a sequential earnings bump as its Morgan Olson segment experienced a pickup in online demand, sources continued.
JB manufactures truck bodies for various trucks including walk-in step vans, commercial vehicle shelving and storage systems, funeral coaches and limousines and provides contract manufacturing services for precision metal parts and machining and casting services.
Led by JPMorgan, proceeds from the USD 150m senior unsecured notes offering are slated to fund plant expansions, product development and strategic acquisitions and general corporate purposes. The notes launched this afternoon at 105.5, at the tight end of talk of 105-105.5. Whispers circulated earlier in the day at 104.75-105.25. Nearly USD 50m of the deal was spoken for in reverse, one of the sources said.
Earnings-wise, management guided 3Q revenue at roughly USD 338m, up 16.5% sequentially, with adjusted EBITDA soaring 229% sequentially to roughly USD 28.3m, two of the sources said.
The company also brought online a new plant in Virginia, which should cut capex for 3Q by roughly 40% to USD 18m. In turn, JB should generate roughly USD 10m of free cash flow in the quarter, they added.
In June, Moody’s expected the company to burn roughly USD 20m in 2020, and transition to moderately positive free cash flow in 2021, assuming growth returns in the company’s Morgan division.
The company is now projecting it will be free cash flow neutral by the end of 2020, two of the sources said.
Pro forma leverage totals roughly 6.3x through USD 510m of total debt and USD 81m of pro forma LTM adjusted EBITDA. Translating the USD 150m to cash, liquidity jumps to USD 392m from roughly USD 245m at the end of 2Q, sources said.
JB’s two largest divisions are Morgan and Morgan Olson. The Morgan division, which manufactures truck bodies for class 5-7 trucks in North America, is expected to decline throughout 2020. On the other hand, the Morgan Olson division, which manufactures step vans used by last-mile delivery companies, including UPS and the USPS, has benefitted from increased online shopping and is expected to perform well through 2021.
S&P expects leverage to decline to the 3x-4x area in 2021, given the expectations for good performance from Morgan Olson because of strong demand in the step-van market and including incremental EBITDA from potential acquisitions.
Historically, the Morgan segment comprises roughly 40% of the company’s revenue, while the Morgan Olson segment makes up around 20%. Investors expect the two segments to balance out as the company moves forward to offset the declines in the Morgan segment.
The company’s backlog is strong for 2021, with a 4,500 unit order from Penske and a minimum 1,000 unit order from the Canadian Postal Service, one of the sources said.
Looking ahead, the company is expected to use proceeds from the deal for small, bolt-on acquisitions of smaller trucking manufacturers that have been distraught as a result of the COVID-19 pandemic.
The issuer’s USD 350m 7.125% senior unsecured notes due 2026 last traded in size at 106.75 to yield 4.422% on 10 September, compared to trades at 106 to yield 5.295% on 17 August, according to MarketAxess. The notes traded in odd lots today at 106.246 to yield 4.922%.
JB Poindexter and JPMorgan did not respond to requests for comment.