Norske Skogindustrier begins new exchange offer for 11¾%, 7% notes

By Angela McDaniels

Tacoma, Wash., Jan. 5 – Norske Skogindustrier ASA canceled the exchange offers for its €121,421,000 of outstanding 11¾% senior notes due 2016 and €218,106,000 of 7% senior notes due 2017 and began new exchange offers for the notes, according to company news releases.

The company said there is a “very significant risk” that its existing cash balances and anticipated cash flow will not be enough to repay the notes at maturity and warned of a possible bankruptcy if the new exchange offers and a concurrent consent solicitation are unsuccessful.

The company said it relies on money from the officers and directors of subsidiary operating companies in the group to satisfy its liabilities. If the exchange offers and consent solicitation are not completed, the uncertainty about Norske Skogindustrier’s liquidity position in 2016 and 2017 may cause these officers and directors to consider whether they can continue to provide that money, according to the company.

In addition, the company said that its independent auditors may question its ability to continue as a going concern and that, in such circumstances, the company would be forced to consider its options, which may include a non-consensual comprehensive balance sheet restructuring.

The company noted that even if the exchange offers and consent solicitations are successful, it will still have “significant cash interest expense, high financial leverage and significant debt repayment obligations due in 2019.”

Without giving pro forma effect to the proposed transactions but giving effect to the repayment of some notes at maturity on Oct. 15, 2015, the company had total interest-bearing liabilities of NOK 8.95 billion as of Sept. 30. As of Dec. 31, its cash balances included restricted cash of about NOK 250 million.

The company also noted that its ability to issue new secured debt is significantly constrained by the terms of its existing senior secured notes and senior subordinated notes.

Exchange offer terms

To the holders of the 11¾% notes, the company is now offering the following:

• An amount of exchange notes due Dec. 30, 2026 issued by Norske Skog AG equal to 54% of the principal amount of notes exchanged;

• An amount of exchange notes due June 5, 2019 issued by Norske Skogindustrier equal to 44% of the principal amount of notes exchanged;

• An amount of “perpetual” notes due Dec. 30, 2115 issued by Norske Skogindustrier equal to 10% of the principal amount of notes exchanged;

• The right to subscribe in cash for ordinary shares of Norske Skogindustrier at a price of NOK 2.24 per share in an amount equal to 4.418% of the principal amount of notes exchanged; and

• An amount in cash equal to accrued interest on the 11¾% notes.

To the holders of the 7% notes, the company is offering the following:

• An amount of exchange notes due Dec. 30, 2026 issued by Norske Skog equal to 20.4% of the principal amount of notes exchanged;

• An amount of exchange notes due Dec. 30, 2026 issued by Norske Skogindustrier equal to 26.4% of the principal amount of notes exchanged plus accrued interest on the 7% notes;

• An amount of perpetual notes due Dec. 30, 2115 issued by Norske Skogindustrier equal to 36.2% of the principal amount of notes exchanged; and

• The right to subscribe in cash for ordinary shares of Norske Skogindustrier at a price of NOK 2.24 per share in an amount equal to 4.418% of the principal amount of notes exchanged.

The exchange offers will expire at 7 a.m. ET on Feb. 3. The settlement date is expected to be Feb. 9.

The minimum principal amount of notes that holders must exchange in order to participate is €1 million in the case of the 11¾% notes and €491,000 in the case of the 7% notes.

If a holder holds at least €228,000 of the 11¾% notes but less than €1 million, the holder may participate in the exchange offer and receive only exchange notes due 2026 issued by Norske Skog and exchange notes due 2019 at the applicable exchange ratio.

Likewise, if a holder holds at least €379,000 of the 7% notes but less than €491,000, the holder may participate in the exchange offer and receive only perpetual notes and exchange notes due 2026 issued by Norske Skogindustrier at the applicable exchange ratio.

New securities

In the exchange offers, Norske Skog will issue up to €110.1 million of exchange notes due 2026. Norske Skogindustrier will issue up to €67.1 million of exchange notes due 2026, up to €53.4 million of exchange notes due 2019 and up to €91.1 million of its perpetual notes.

The issue price for each new issue will be par.

The interest rate will be 6% cash/6% payment-in-kind for Norske Skog’s exchange notes due 2026, 3.5% cash/3.5% PIK for Norske Skogindustrier’s exchange notes due 2026, 5 7/8% cash/5 7/8% PIK for the exchange notes due 2019 and 2% for the perpetual notes.

Consent solicitation

In addition to the exchange offers, the company is seeking consents from holders of the 7% notes to some amendments to the 7% notes.

If approved, the amendments will extend the maturity date to Dec. 30, 2026 from June 26, 2017, convert all outstanding 7% notes to registered form, reduce the principal amount of each €1,000 principal amount of 7% notes to €100, change the interest rate from 7% in cash to a combination of 3.5% in cash and 3.5% in PIK interest and change the interest payment date from an annual payment of interest on July 27 to two semiannual payments on June 30 and Dec. 30.

In addition, the amendments will add an optional redemption and mandatory exchange option to provide that the 7% notes will be callable at a redemption price equal to the 7% notes redemption/exchange consideration or mandatorily exchangeable for the 7% notes redemption/exchange consideration and to delete the change-of-control put option.

Holders will vote on the proposed amendments at a meeting at 10 a.m. ET on Feb. 5. They have until 7 a.m. ET on Feb. 3 to deliver their voting instructions.

Two or more people holding or representing at least 75% principal amount of the outstanding 7% notes are needed in order to form a quorum. The amendments will be approved if at least 75% of the votes cast at the meeting are in favor of the amendments.

By exchanging their 7% notes, holders will be automatically consenting to the proposed amendments.

Holders do not need to participate in the exchange offer in order to participate in the consent solicitation, and holders of 7% notes who do not hold enough notes to participate in the exchange offer are still eligible to deliver consents.

If the amendments are approved, then the company will allow, for 10 business days, any non-participating holder who qualified as a specified eligible holder to tender their 7% notes in exchange for the 7% notes exchange offer consideration that would have been payable had that non-participating holder tendered notes for exchange.

Subscription for shares

In the subscription, the company will sell up to €15 million of ordinary shares to the noteholders.

Holders who wish to subscribe for shares must tender their notes in the exchange offers.

Electing holders must subscribe for at least €100,000 of ordinary shares.

The right for holders to elect to subscribe for ordinary shares is not transferable to any other party.

If the company does not receive paid subscriptions for €10 million of ordinary shares by the expiration of the exchange offers, it reserves the right to place the remaining ordinary shares with other holders of the 11¾% notes and 7% notes or other investors.

Noteholder agreement

The prior exchange offers began Nov. 17 and were scheduled to end at 5 a.m. ET on Jan. 12.

The company was also seeking consents to amend the 11¾% notes, the 7% notes, Norske Skog Holding AS’ €159,017,000 senior notes due 2021 and Norske Skog Holding’s $60,649,000 senior notes due 2023. That consent solicitation was also terminated.

On Dec. 22, the company announced plans to cancel the prior exchange offers after reaching an agreement for new refinancing terms with noteholders GSO Capital Partners LP and Cyrus Capital Partners, LP.

GSO and Cyprus agreed to tender their holdings of the 11¾% notes and 7% notes, to subscribe for their pro rata portions of ordinary shares and to purchase for cash the company’s treasury holdings of €12.9 million principal amount of 11¾% notes and €5.6 million principal amount of the 7% notes for an aggregate purchase price of €10.3 million and to tender those notes.

They also agreed to provide a new NOK 250 million receivables facility to Norske Skog Saugbrugs AS and Norske Skog Skogn AS. The facility will be secured by a first-priority pledge over Norwegian receivables, the proceeds of which will be used to repay and discharge the existing Sparebank 1 Gruppen Finans AS facility and to repay the fees and expenses associated with the new facility, including a commitment fee of 1%.

The company will reimburse up to €1.5 million of reasonable and properly documented expenses in connection with the transactions.

The agreement further acknowledges that the company, following the completion of the transactions, in order to address the dilution effects of the transactions, will begin a repair offering of ordinary shares to existing shareholders at a price of NOK 2.24 per ordinary share.

Including the notes to be acquired from the company, GSO and Cyrus hold 37.6% of the 11¾% notes and 68.2% of the 7% notes.

Background to prior offers

During the first quarter of 2015, the company issued €290 million of senior secured notes and held exchange offers for its existing notes for new senior subordinated notes due 2021, senior subordinated notes due 2023 and cash.

According to the company, the exchange offers and related transactions improved its capital structure, but it experienced challenging trading conditions in 2015 mainly due to depressed publication paper prices and volumes in Europe and challenging export markets in Asia. EBITDA, net cash flow from operating activities and equity declined compared to the prior year period.

Conditions

The exchange offers and consent solicitations are subject to the following conditions, among others:

• The receipt of tenders for at least 90% of the outstanding 11¾% notes and at least 75% of the outstanding 7% notes, excluding any notes held by the company;

• The company’s satisfaction that it will receive at least €10 million of proceeds from subscriptions to its ordinary shares; and

• The company’s satisfaction that the effectiveness of, and the initial funding under, the Norwegian receivables facility will occur by the settlement date.

The exchange agent and tabulation agent is Lucid Issuer Services Ltd. (+44 20 7704 0880 or norskeskog@lucid-is.com).

Norske Skogindustrier is an Oslo-based paper and pulp company.

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