USG: 2009 will be a 'challenging year'

USG Corp., the largest maker of gypsum wallboard in North America, agreed to reduce the amount of a credit line by $150 million and secure it with assets in exchange for relaxing covenants the company was likely to break.

The agreement replaces an unsecured $650 million line of credit with a $500 million loan backed by money owed to the company and its inventory, said James Bencomo, USG's investor relations director. The previous credit line included "restrictive" terms, Chicago-based USG said in a statement today.

Home construction fell to an annual rate of 625,000 in November, the lowest level since the government started compiling statistics in 1959. USG, which has been searching for funding amid frozen markets and dwindling demand for wallboard, is projected to report its fifth straight quarterly loss this month.

"The banks clearly are concluding that USG is a viable business that obviously is suffering some external, cyclical problems," said James Barrett, an analyst with CL King & Associates in New York.

In November, the company sold $400 million of convertible notes, $300 million of which were bought by Warren Buffett's Berkshire Hathaway Inc., its largest shareholder. USG also said it would cut 900 salaried positions to help save $125 million and would reduce capital spending to $50 million this year from $240 million in 2008.

'Another Challenging Year'

"Those actions, together with the amendment to the credit agreement, greatly improve our financial flexibility as we enter 2009, which we expect will be another challenging year," William Foote, chief executive officer, said in the statement.

In connection with the amendment agreement, USG ended a $170 million credit facility based on accounts receivable. The $500 million revolving loan, which was led by JPMorgan Chase & Co., has one covenant that kicks in if the company draws down more than $425 million of the funds.

USG has a third-quarter loss of $40 million, compared with net income of $7 million a year earlier, on sales of $1.21 billion.

USG fell 48 cents, or 4.2 percent, to $10.85 at 1:01 p.m. in New York Stock Exchange trading.