Vertis, American Color Graphics file bankruptcy to complete merger

By Caroline Salls

Pittsburgh, July 15 - Vertis Communications and American Color Graphics Inc. made pre-packaged bankruptcy filings Tuesday in the U.S. Bankruptcy Court for the District of Delaware to complete their merger, according to company news releases.

According to the Vertis release, 100% of the holders of the company's 9¾% senior secured second-lien notes due 2009, 98.6% in dollar amount and 98.3% in number of holders of its 10 7/8% senior notes due 2009 and 100% of the holders of its 13½% senior subordinated notes due 2009 voted to approve the companies' joint plan of reorganization.

Meanwhile, more than 99.9% in dollar amount and 95.3% in number of American Color's 10% senior secured second-lien notes due 2010 voted to approve the plan.

"The restructuring plan will allow the company to dramatically reduce debt and interest cost, complete its reorganization and merger in just a few short months and refocus investments into the business," Vertis chairman and chief executive officer Mike DuBose said in the release.

"The strong support of this plan should facilitate completing the restructuring and merger by late summer so we can immediately begin the implementation of our integration plans with American Color Graphics, allowing us to further leverage our combined best-in-class products, services and employees."

Vertis said it expects to complete its Chapter 11 reorganization in 60 days.

As previously reported, the focal point of the pre-packaged plan is the agreement between Vertis and American Color Graphics to merge American Color's operations into Vertis' nationwide marketing and printing services platform.

Vertis said the merger will allow both companies to enrich their core manufacturing capabilities relevant to the production of advertising inserts and newspaper products.

DIP financing

In conjunction with the pre-packaged Chapter 11 cases, Vertis has obtained $380 million in debtor-in-possession financing from GE Commercial Finance, as well as commitments for $650 million in exit financing, which will be used to fund the combined company's working capital needs after emergence.

The DIP facility will include a $50 million term loan A, a $200 million term loan B and a $130 million revolving credit facility.

Interest on the term loan A will be Eurodollar plus 550 basis points; interest on the term loan B will be Eurodollar plus 300 bps; and interest on the revolver will be Eurodollar plus 275 bps.

The Vertis DIP facility will mature on the earlier of 90 days or the effective date of a plan of reorganization.

The exit financing is expected to consist of a $250 million senior secured revolving credit exit facility with GE and a $400 million exit facility with Morgan Stanley Senior Funding, Inc.

American Color has received a commitment for up to $135 million in debtor-in-possession financing from Bank of America, with a $20 million letter-of-credit subfacility.

American Color's DIP facility will mature on the earlier of 60 days after the bankruptcy filing date or on the effective date of a plan of reorganization.

Interest will be Base rate plus 500 bps.

Vertis said the financial restructurings will reduce the combined company's debt by roughly $1 billion before transaction fees and expenses.

Under the plan, the companies' noteholders will exchange their bonds for a total of $550 million in new notes and substantially all of the new equity in the merged company.

Because the merger includes American Color's Canadian operations, American Color said it has also applied to the Superior Court of Justice in Ontario for an order that recognizes the Chapter 11 proceedings as foreign proceedings under Section 18.6 of the Companies' Creditors Arrangement Act.

"We are extremely pleased with the tremendous progress that has been made to date. We remain on track to complete the merger later this summer," American Color chairman and CEO Steve Dyott said in the release.

"Today's actions and the resulting merger with Vertis will allow both companies to achieve a more appropriate capital structure, better position us to meet the challenges of our industry, and make an exciting array of new opportunities available to our customers."

Under the joint restructuring plan:

• The holders of $350 million of Vertis second-lien notes will receive $350 million in new 13% four-year second-lien notes;

• The holders of $350 million of Vertis senior notes will receive $107 million of new five-and-a-half-year 13½% pay-in-kind senior notes and roughly 57% of the new common stock of Vertis Holdings;

• The holders of $293.5 million of Vertis senior subordinated notes will receive $27 million of new senior notes of Vertis, 10% of the new common stock of Vertis Holdings and warrants to acquire 11.5% of the new common stock of Vertis Holdings;

• Vertis Holdings' existing common stock will be cancelled, and holders will receive no distribution;

• The holders of the $280 million of American Color Graphics notes will receive $66 million of the new Vertis senior notes and 33% of the new Vertis Holdings common stock;

• Holders of Vertis and American Color general unsecured claims will receive full payment in cash;

• ACG non-interest-bearing notes will be cancelled;

• Holders of ACG equity interests will receive their share of cash equal to 0.05% of the reorganized equity value;

• Equity interests in ACG subsidiaries will be reinstated; and

• The more than $240 million in Vertis Holdings' mezzanine notes will no longer be an obligation of the company after the transaction closes.

Debt information

According to court documents, Vertis had $523 million in assets and $1.4 billion in debt at May 31, and American Color has $100 million to $500 million in assets and $500 million to $1 billion in debt.

Vertis' largest unsecured creditors include:

• Indenture trustee Bank of New York, with a $372.2 million unsecured debt claim for the 10 7/8% notes and a $318.26 million unsecured debt claim for the 13½% notes;

• THL Foreign Fund IV-B LP, Boston, with a $10.52 million mezzanine debt claim and a $3.74 million mezzanine debt claim;

• Abitibi Consolidated, White Plains, N.Y., with a $4.91 million trade debt claim;

• Flint Ink Corp., Plymouth, Mich., with a $2.02 million trade debt claim; and

• Great-West Investors LP, with a $1.77 million mezzanine debt claim.

American Color's largest unsecured creditors include:

• Abitibi Bowater Consolidated, Inc., Bayside, N.Y., with a $6.41 million trade claim;

• Sun Chemical Corp., Northlake, Ill., with a $3.94 million trade claim; and

• Kempf Paper Corp., Minneapolis, with a $1.41 million trade claim.

American Color Graphics is a Brentwood, Tenn., pre-media and print company. Its Chapter 11 case number is 08-11467.

Baltimore-based Vertis provides print advertising and marketing solutions. Its Chapter 11 case number is 08-11460.

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