Walter Industries sued by second 3.75% convertible noteholder protesting spinoff

By Angela McDaniels

Seattle, Nov. 17 - Walter Industries, Inc. said an additional holder of its 3.75% convertible senior subordinated notes due 2024 has filed a motion to stop the company's 2-for-1 stock split and planned spinoff distribution of its 85.8 million shares of Mueller Water Products, Inc. series B common stock to Walter Industries shareholders.

The company learned on Thursday that CNH CA Master Account LP filed the motion in the Federal District Court for the Southern District of New York, according to an 8-K report filed with the Securities and Exchange Commission on Friday.

CNH CA and CSS LLC - which hold $66.575 million and $10 million of the convertibles, respectively - wrote to the Bank of New York Trust Co. NA, the indenture trustee, requesting that the trustee begin legal action against the company after noteholder CC Arbitrage Ltd. filed a civil action with the court on Oct. 25.

CC Artibitage, which said it holds $22.5 million of the convertibles, alleged that the supplemental indenture for the convertibles entered into on Aug. 10 was improperly adopted.

The supplemental indenture was entered into in order to cure a provision in the indenture relating to the adjustment of the conversion ratio in the case of a spinoff transaction, according to a Walter Industries news release.

More specifically, the indenture remedied an omission in the definition of "Last Reported Sale Price" by adding text to define "Last Reported Sale Price" in the context of the determining spinoff market price and an errant formula in a proviso in the antidilution provision, thereby making the proviso consistent with the remainder of the section, according to an 8-K report filed with the SEC on Aug. 16.

The company continues to believe that the actions it has taken are entirely within its rights and that the claims by Arbitrage and CNH are entirely without merit. Furthermore, the company said it will vigorously defend its actions against these and any other similar claims that may be asserted.

Walters Industries is a Tampa, Fla.-based diversified company that operates in the homebuilding and water transmission products industries and produces metallurgical coal.

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