Verso Paper meets minimum tenders needed in exchange offers for buyout

By Susanna Moon

Chicago, July 31 – Verso Paper Corp. subsidiaries Verso Paper Holdings LLC and Verso Paper Inc. reached the minimum threshold needed in the exchange offers for the $396 million of 8¾% second-priority senior secured notes due 2019 and $142.5 million 11 3/8% senior subordinated notes due 2016.

Holders had tendered about $299.4 million, or 75.6%, of the 8¾% notes by the end of the offer at midnight ET on July 30, which tops the 75% minimum participation condition.

The company also received tenders for $102 million, or 71.6%, of the 11 3/8% notes by the early tender deadline of midnight ET on July 30, which meets the 70% minimum participation condition.

The offer for the 11 3/8% notes will continue to run until midnight ET on Aug. 6. Both offers began June 2.

Because of the results, the principal amount of second-priority adjustable senior secured notes following the merger per $1,000 principal amount of new second-lien notes prior to the merger will be $593.75, according to a company news release.

In addition, the issuers have received the needed consents to amend the notes, and they expect to promptly execute supplemental indentures that will become operative upon settlement of the tendered notes.

As previously announced, the issuers are offering new second-priority adjustable senior secured notes and warrants in exchange for the 8¾% notes and new adjustable senior subordinated notes and warrants in exchange for the 11 3/8% notes.

The warrants will be mandatorily convertible into shares of common stock of Verso immediately prior to the completion of Verso’s acquisition of NewPage Holdings Inc., which is expected to close in the second half of 2014.

The closing of the merger is conditioned on the completion of the exchange offers.

“We thank our noteholders for their strong support that has helped us satisfy the minimum participation conditions for the exchange offers,” Dave Paterson, Verso’s president and chief executive officer, said in the press release.

“We have made significant progress to completing our acquisition of NewPage.”

Recent changes to offer

Verso said on July 24 that the companies made changes to the exchange offers, after they had failed to reach minimum participation threshold needed in the offers.

The offer for the 8¾% notes was amended so that all holders who tender prior to the expiration will receive the early tender premium. Before the change, holders had to tender by the early tender time, midnight ET at the end of July 16, in order to receive the premium.

In the offer for the 11 3/8% notes, the issuers lifted the early tender premium, increased the number of warrants to be received per note exchanged, cut the downward adjustment to be made to the principal amount of the new notes following the merger, changed the terms of the new notes to be issued and lowered the minimum amount of notes that must be tendered in order to complete the offer.

As of July 23, holders of $99.7 million principal amount of 11 3/8% notes had tendered their notes or agreed to tender their notes in the amended exchange offer, and holders of $286.9 million principal amount of 8¾% had tendered their notes.

11 3/8% notes exchange offer

In exchange for each $1,000 principal amount of 11 3/8% notes, holders who exchange will receive an equal amount of new notes. This amount includes a premium of $150 principal amount of new notes – increased from $50 – in exchange for each $1,000 principal amount of notes tendered by the early tender time, which was extended to midnight ET at the end of July 30 from midnight ET at the end of July 16.

In exchange for each $1,000 principal amount of 11 3/8% notes tendered after the early tender time, holders who exchange will receive $850 principal amount – decreased from $950 principal amount – of new notes.

The issuers will not pay accrued interest on the 11 3/8% notes exchanged in the offer. Interest on the new notes will accrue from Aug. 1.

For each $1,000 principal amount of 11 3/8% notes tendered, holders will receive a number of warrants equal to (a) $1,000 divided by (b) the aggregate principal amount of 11 3/8% notes as of the date of consummation of the exchange offer multiplied by (c) 6.67% – increased from 4.774% – of the total number of outstanding shares of common stock, determined on a fully diluted basis after giving effect to the merger and the issuance of common stock upon the mandatory conversion of all warrants issued in the exchange offers.

The principal amount of the new notes will be adjusted following the merger based on the level of participation in the exchange offer.

Each $1,000 principal amount of new notes outstanding prior to the merger will be adjusted to $710 if 100% of the 11 3/8% notes are tendered in the exchange offer, to $695 if 95% of the 11 3/8% notes are tendered, to $680 if 90% of the 11 3/8% notes are tendered, to $665 if 85% of the 11 3/8% notes are tendered, to $650 if 80% of the 11 3/8% notes are tendered, to $635 if 75% of the 11 3/8% notes are tendered and to $620 if 70% of the 11 3/8% notes are tendered.

If holders in the aggregate tender a percentage of 11 3/8% notes that is not specified above, holders will receive the principal amount corresponding to the closest lower percentage. For example, if 87.5% of the 11 3/8% notes are tendered, holders will receive the principal amount corresponding to 85%.

Under the original terms of the exchange offer, each $1,000 principal amount of new notes outstanding prior to the merger was going to be adjusted to between $606.875 and $681.875 depending on the amount of 11 3/8% notes tendered.

Prior to the merger, the new notes will have substantially the same terms as the 11 3/8% notes in that they will have their original principal amount ($142.5 million), will bear interest at a rate of 11 3/8% per year, will mature on Aug. 1, 2016 and will be governed by covenants that are substantially the same as the covenants currently governing the 11 3/8% notes. If the merger does not occur, the new notes will retain their original principal amount and these same terms.

Once the merger is completed, the principal amount of the outstanding new notes will be adjusted as noted above, the maturity date will be extended to Aug. 1, 2020, and the interest rate will be adjusted to 11% in cash plus 5% in kind.

Under the original terms of the exchange offer, the maturity date was going to be extended to Aug. 1, 2021, and the interest rate was going to be adjusted to 10% in cash plus 3% in kind.

Following the completion of the merger, the issuers may redeem the new notes, in whole or in part, at any time prior to Aug. 1, 2017 at par plus a make-whole premium. At any time following the completion of the merger and on or after Aug. 1, 2017, Aug. 1, 2018 or Aug. 1, 2019, the issuers may redeem the new notes at 105.5, 102.75 and par, respectively

The new notes will be guaranteed by the wholly owned domestic restricted subsidiaries of Verso Paper Holdings that guarantee its credit facilities. After the merger, the new notes will be guaranteed by NewPage but not its subsidiaries.

The completion of the 11 3/8% notes exchange offer is conditioned on, among other things, the tender of at least 70% – reduced from 75% – of the outstanding 11 3/8% notes. The issuers will make alternative arrangements on similar economic terms to the exchange offer for holders who are not eligible holders; the 70% minimum condition will include in it any 11 3/8% notes held by such holders that tender under such alternative arrangements.

The exchange offer for the 11 3/8% notes is not conditioned on the completion of the exchange offer for the 8¾% notes.

8¾% exchange offer

In exchange for each $1,000 principal amount of 8¾% notes, holders who exchange will receive an equal amount of new notes. This amount includes a premium of $50 principal amount of new notes in exchange for each $1,000 principal amount of notes.

The issuers will not pay accrued interest on the 8¾% notes exchanged in the offer. Interest on the new notes will accrue from Aug. 1.

For each $1,000 principal amount of 8¾% notes tendered, holders will receive a number of warrants equal to (a) $1,000 divided by (b) the aggregate principal amount of 8¾% notes as of the date of consummation of the exchange offer multiplied by (c) 15% of the total number of outstanding shares of common stock, determined on a fully diluted basis after giving effect to the merger and the issuance of common stock upon the mandatory conversion of all warrants issued in the exchange offers.

The principal amount of the new notes will be adjusted following the merger based on the level of participation in the exchange offer.

Each $1,000 principal amount of new notes outstanding prior to the merger will be adjusted to $668.75 if 100% of the 8¾% notes are tendered in the exchange offer, to $653.75 if 95% of the 8¾% notes are tendered, to $638.75 if 90% of the 8¾% notes are tendered, to $623.75 if 85% of the 8¾% notes are tendered, to $608.75 if 80% of the 8¾% notes are tendered and to $593.75 if 75% of the 8¾% notes are tendered.

If holders in the aggregate tender a percentage of 8¾% notes that is not specified above, holders will receive the principal amount corresponding to the closest lower percentage. For example, if 87.5% of the 8¾% notes are tendered, holders will receive the principal amount corresponding to 85%.

Before the merger is completed, the new notes will have substantially the same terms as the 8¾% notes in that they will have their original principal amount ($396 million), will bear interest at a rate of 8¾% per year, will mature on Feb. 1, 2019 and will be governed by covenants that are substantially the same as the covenants currently governing the 8¾% notes. If the merger does not occur, the new notes will retain their original principal amount and these same terms.

Once the merger is completed, the principal amount of the new notes will be adjusted as noted above, the maturity date will be extended to Aug. 1, 2020, the interest rate will increase to 10% in cash plus 3% in kind, the optional redemption provisions will be amended and the new notes will be governed by different covenants.

The new notes will be guaranteed by the wholly owned domestic restricted subsidiaries of Verso Paper Holdings that guarantee its credit facilities. After the merger, the new notes will be guaranteed by NewPage but not its subsidiaries.

The completion of the 8¾% notes exchange offer was conditioned on the tender of at least 75% of the outstanding 8¾% notes, which has been satisfied, but was not conditioned on the completion of the exchange offer for the 11 3/8% notes.

Consent solicitation

In connection with the exchange offers, the issuers are soliciting consents to amend the 8¾% notes, the 11 3/8% notes and the indentures governing both notes.

The proposed amendments, which require the consent of a majority in outstanding principal amount of the 8¾% notes and 11 3/8% notes, respectively, will eliminate or waive substantially all of the restrictive covenants, eliminate some events of default, modify covenants regarding mergers and transfer of assets and modify or eliminate some other provisions.

In addition, the consents for the 8¾% notes will authorize a release of the liens and security interests in the collateral securing the 8¾% notes. In order to be effected, the collateral release must be consented to by the holders of at least two-thirds in outstanding aggregate principal amount of the 8¾% notes.

The information agent is Global Bondholder Services Corp. (212 430-3774 for brokers and banks or 866 470-3700 for all others).

Memphis-based Verso Paper produces coated papers. NewPage is a Miamisburg, Ohio-based producer of printing and specialty papers.

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