Vertis elects to complete refinancing via pre-packaged bankruptcy

By Caroline Salls

Pittsburgh, Nov. 18 - Vertis Holdings, Inc. has elected to complete its previously announced refinancing through a pre-packaged Chapter 11 bankruptcy filing, according to a company news release.

The filing was made Nov. 17 in the U.S. Bankruptcy Court for the Southern District of New York.

Vertis said the recapitalization will strengthen its capital structure by reducing its total debt by about 60%, or $700 million, while substantially lowering interest costs, extending maturities and increasing liquidity.

Financing

In conjunction with the filing, Vertis has secured a commitment for a $200 million debtor-in-possession revolving credit facility from GE Capital Corp.

The company said the DIP facility will give it the necessary financing to complete the confirmation of its plan of reorganization within 45 to 60 days and ensure that it is able to uphold its commitments to clients, employees and suppliers.

Interest will be Libor plus 250 basis points if usage under tranche A of the facility is less than 25%, interest will be Libor plus 275 bps if usage is between 25% and 75%, and interest will be Libor plus 300 bps if usage is greater than 75%.

Interest for tranche B of the facility will be Libor plus 775 bps.

The facility will mature on the earlier of six months from closing and the effective date of the company's plan of reorganization.

The company is seeking interim access to $185 million of the DIP financing.

In addition, Vertis said it has already received commitments for $600 million in financing to be implemented under the plan, including a $425 million term loan from Morgan Stanley Senior Funding, Inc. and a $175 million revolver from GE Capital.

Vertis has also received commitments for up to $100 million of new common equity under its previously announced private placement and associated backstops.

The company's plan calls for suppliers to be paid in full.

"Today we have taken a decisive step that will enable us to expeditiously complete our recapitalization," chief executive officer Quincy L. Allen said in the release.

"We will emerge as an even stronger company with significant opportunities to grow our relationships with all of our stakeholders today and in the future."

Creditor treatment

Treatment of creditors will include:

• Holders of administrative claims, priority non-tax claims, revolving lender claims, term loan claims, other secured claims, general unsecured claims and intercompany claims will be paid in full;

• Holders of series A second-lien note claims will receive a share of 96.25% of the new common stock in the reorganized company, as well as an opportunity to purchase 20.245 shares of new common stock per $1,000 of series A second-lien notes under a private placement;

• Holders of series B second-lien note claims will receive a share of a second-lien note claims stock allocation and the right to purchase shares under the private placement;

• Holders of series C second-lien note claims will receive a share of the second-lien note claims stock allocation and the right to purchase 19.233 shares per $1,000 of notes in the private placement;

• Holders of senior PIK note claims will receive a share of 3.75% of the new common stock; and

• Holders of subordinated 510(b) claims and Vertis Holdings interests will receive no distribution.

Exchange offer cancelled

Vertis announced on Nov. 2 that holders of its senior secured second-lien notes due 2012 and its senior pay-in-kind notes due 2014 were being offered the opportunity to exchange their existing debt for equity.

The company also announced that it was soliciting acceptances of its proposed pre-packaged Chapter 11 plan as an alternate path for implementing the restructuring.

According to the release, early voting results as of Nov. 15 indicated a low likelihood of reaching the 98% participation levels established in the out-of court exchange offers.

As a result, Vertis said it decided that making the voluntary pre-packaged filing before the Dec. 1 voting deadline was the right path to complete its recapitalization in the near term.

As of Nov. 17, the company had received overwhelming acceptances of its plan. Specifically, holders of 98.29% in principal amount of the second-lien notes voted to accept the plan and holders of 99.98% in principal amount of the senior PIK notes voted to accept it.

The company has cancelled the exchange offer.

Debt details

According to court documents, Vertis had $1.49 billion in assets and $1.56 billion in debt at Oct. 31.

The company's largest unsecured creditors include:

• Trustee HSBC Bank USA, NA of New York, with a $262.81 million PIK notes claim;

• Abitibi Bowater of Chicago, with a $17 million trade debt claim;

• Lindenmeyr Munroe of Purchase, N.Y., with a $5.36 million trade debt claim;

• Valassis Direct Mail of Livonia, Mich., with a $3.84 million trade debt claim;

• Sun Chemical Ltd. of Parsippany, N.J., with a $2.59 million trade debt claim;

• Newpage Corp. of Richmond, Va., with a $2.22 million trade debt claim;

• Empire BCBS Wellpoint of Brooklyn, N.Y., with a $2.14 million direct mail postage program claim;

• Flint Ink Corp. of Elizabethtown, Ky., with a $1.83 million trade debt claim;

• CBA Industries of Elmwood Park, N.J., with a $1.63 million trade debt claim; and

• Catalyst Paper of Seattle, with a $1.25 million trade debt claim.

Avenue Special Situations Fund IV, LP and Avenue Special Situations Fund V, LP collectively hold 59.18% ownership interests in the company.

Vertis is represented by Skadden Arps Slate Meagher & Flom, LLP.

Baltimore-based Vertis provides print advertising and marketing services. Its Chapter 11 case number is 10-16170.

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