Formica files reorganization plan; unsecured creditors will receive 20% recovery

By Carlise Newman

Chicago, Sept. 24 - Formica Corp. filed its plan of reorganization and disclosure statement with the U.S. Bankruptcy Court for the Southern District of New York. Under the plan, unsecured creditors will receive 20% recovery, and senior secured lenders will receive 99.5% recovery.

Under the plan, general unsecured creditors, with $260 million in claims, will receive $12.75 million in cash and $8.675 million in new subordinated secured notes. The creditors initially owned $215 million 10 7/8% notes due 2009 with a further $12 million of accrued interest outstanding.

Senior secured lenders, consisting of $305.75 million outstanding under the credit agreement, will receive $173 million in cash, and will provide $130 million in new financing.

The new facility will be equal to 99.5% of the senior lenders claims, minus the $173 million and any excess cash paid to the lenders on the effective date. The facility will consist of a domestic and a foreign portion: the new company and its holding company will be the guarantors of the domestic portion of the senior secured term loan facility, secured by liens of those entities; and the reorganized company's foreign subsidiaries will be the guarantors for the foreign portion.

The facility will bear interest at either Libor plus 500 basis points or the prime rate plus 350 basis points. If the EBITDA ratio is less than two-to-one, the rate will from time to time be reduced by 50 basis points. The amortization is $500,000 for the first year after closing date; 2.5% of the initial loan plus $500,000 for the second year; 5% of the initial loan plus $500,000 for year three; 7.5% plus $500,000 for year 4; 10% plus $500,000 for year 5; and the balance is due in year six.

Laminates equity interests and holdings preferred equity interests will receive nothing. Equity holders other than laminates or holdings preferreds will receive 100% recovery, as the buyer will provide new value equal to the equity.

The court has already approved an agreement under which an investment group sponsored by Cerberus Capital Management LP and Oaktree Capital Management LLC will invest $175 million in cash in Formica and its subsidiaries.

Formica will have $160 million of debt after the reorganization, down from $540 million at the time of filing for Chapter 11.

The Warren, N.J. manufacturer of decorative surfacing materials said the plan reflects a reorganization agreed with its senior secured lenders and the official committee of unsecured creditors.

The plan is subject to creditor approval and confirmation by the bankruptcy court.

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