IPO Preview: Boise Cascade

| About: Boise Cascade (BCC)
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Based in Boise, ID, Boise Cascade, L.L.C., (NYSE:BCC) scheduled a $200 million IPO with a market capitalization of $705 million at a price range mid-point of $17, for Wednesday, February 6, 2013.

Eight IPOs are scheduled for the week of February 4. The full IPO calendar is available here.

S-1 filed January 23, 2013.

Manager, Joint Managers: BofA Merrill Lynch/ Goldman Sachs
Co Managers: Deutsche Bank Securities/ J.P. Morgan/ Wells Fargo Securities/ D.A. Davidson/ Moelis/ Piper Jaffray.

80% of BCC's sales are from building products distribution, a cyclical and a low margin business. BCC is starting to generate earnings and cash, and there appears to be considerable potential margin leverage as the housing market picks up. Sales, for example, are 3x the IPO market cap.

The pension plan is underfunded by $188 million, which would wipe 65% off the balance sheet net worth post-IPO, if the pension liability were an on-balance sheet item.

Boise Cascade, L.L.C., is the registrant whose name appears on the cover of the registration statement, and is a Delaware limited liability company. Prior to the effectiveness of the registration statement, Boise Cascade, L.L.C. will be converted into a Delaware corporation and renamed Boise Cascade Company

BCC should be bought on the IPO based on recent financial performance, valuation metrics and is a way to play a more healthy housing market.

BCC is a large, vertically-integrated wood products manufacturer and building materials distributor with widespread operations throughout the United States and Canada.

BCC is the second largest manufacturer of laminated veneer lumber ("LVL"), I-joists (together "engineered wood products" or "EWP") and plywood in North America, according to the Resource Information System Inc.'s 2012 Capacity Report.

BCC believes it is also one of the largest stocking wholesale distributors of building products in the United States. BCC's line of products is used primarily in new residential construction, residential repair and remodeling projects, light commercial construction and industrial applications.

BCC also believes its large, vertically-integrated operations provides a significant advantage over less integrated competitors.

BCC has a broad base of more than 4,500 customers, which includes a diverse mix of leading wholesalers, home improvement centers, retail lumberyards and industrial converters.

Demand for BCC products is principally influenced by new residential construction, light commercial construction and repair and remodeling activity in the United States.

From 2005 to 2011, total housing starts in the United States declined by more than 70%. According to the U.S. Census Bureau, total housing starts in the United States were 0.59 million in 2010 and 0.61 million in 2011, modest increases over the 2009 level of 0.55 million (the lowest year on record) but significantly less than the 50-year average rate of 1.5 million. Prior to 2008, the housing market had not experienced a year with total housing starts below 1.0 million since the U.S. Census Bureau began its annual record keeping in 1959.

In November 2012, single- and multi-family housing starts were 0.86 million on a seasonally adjusted annual rate basis, an increase of 22% from November 2011.

As of December 2012, the Blue Chip Economic Indicators median consensus forecast of single- and multi-family housing starts in the U.S. was approximately 0.78 million units for 2012 and approximately 0.96 million units for 2013, which represent annual increases of 28% and 23%, respectively.

BCC believes that over the long-term, there is considerable growth potential in the U.S. housing sector. As of December 2012, IHS Global Insight estimates that total U.S. single- and multi-family housing starts will average 1.47 million units per year from 2012 through 2021, levels that are in line with the 50-year historical average.

. Grow the wood products segment operations with a focus on expanding the market position in Engineered Wood Products ('EWP').
. Grow the market share in the building products segment.

In recent years, BCC's reported pension benefit obligations have grown significantly, primarily due to the low interest rate environment in the U.S. and its impact on the discount rate assumptions used to measure the present value of pension benefit obligations. Assuming the low interest rate environment persists, BCC expects to have significant pension funding obligations.

BCC reported an underfunded status of defined benefit pension plans of $188 million, which would wipe at 65% of balance sheet net worth, post-IPO.

In late December 2012, BCC made cash distributions of $225 million in aggregate to BC Holdings, the private equity owner.

No plans to pay future dividends.

Building Materials Distribution
National wholesale distribution competitors include BlueLinx Holdings Inc. and Weyerhaeuser Company. Cedar Creek Inc. is one of BCC's regional competitors in the Southeastern United States.

BCC also competes with wholesale brokers such as Forest City Trading Group, and certain buying cooperatives such as Lumbermens Merchandise Cooperative.

Wood Products
BCC competes against several major North American EWP producers, such as Weyerhaeuser (NYSE:WY) and Louisiana Pacific (NYSE:LPX), as well as several other smaller, regional firms. BCC's EWP products also face competition from numerous dimension lumber producers because EWP may be substituted by dimension lumber in many building applications.

In plywood, BCC competes with Georgia-Pacific, the largest manufacturer in North America, other large producers such as Roseburg Forest Products, and several smaller producers.

BCC's direct parent company, BC Holdings, is controlled by Forest Products Holdings, L.L.C., an entity controlled by an investment fund managed by Madison Dearborn. Madison Dearborn, based in Chicago, is an experienced private equity investment firm that has raised over $18 billion of capital. Since its formation in 1992, Madison Dearborn's investment funds have invested in approximately 125 companies across a broad spectrum of industries, including basic industries.

BCC expects to net $183 million from its IPO.

BCC expects to use $25.0 million of the IPO proceeds to repay borrowings under the revolving credit facility and the remainder for general corporate purposes.

Disclaimer: This IPO report is based on a reading and analysis of BCC's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.