Norske Skog cancels one exchange offer, amends offer for 7% notes

By Angela McDaniels

Tacoma, Wash., March 18 – Norske Skogindustrier ASA terminated the exchange offer for its €121,421,000 of outstanding 11¾% senior notes due 2016 and amended the exchange offer for its €218,106,000 of 7% senior notes due 2017, according to a company news release.

Eligible holders who exchange will receive unsecured parent company notes due December 2026 based on an exchange ratio of 46.8% of the principal amount of 7% notes exchanged and parent company “perpetual” notes due 2115 based on an exchange ratio of 36.2% of the principal amount of 7% notes exchanged.

The new notes due 2026 will have materially the same terms as the 7% notes and will bear cash interest of 3.5% and paid-in-kind interest of 3.5%. The perpetual notes will bear cash interest of 2%, which can be deferred in whole or in part.

The new notes due 2026 will, like the existing 7% notes, rank effectively junior to the company’s €290 million senior secured notes due December 2019, €159 million guaranteed unsecured notes due 2021 and $61 million guaranteed unsecured notes due 2023.

Norske Skogindustrier said that if it retains the current level of participation from 7% noteholders, which is above the required threshold to amend the 7% notes, the terms of the 7% notes will be amended and non-participating holders will receive the same exchange offer consideration that participating holders will receive in the amended exchange offer.

The exchange offer and consent solicitation will expire at 7 a.m. ET on April 6, extended from 8 a.m. ET on March 21.

The company said the amended exchange offer is supported by the holders of more than 68% of the outstanding 7% notes.

As reported on Jan. 5, 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.

New equity, liquidity initiatives

Norske Skogindustrier said its book equity is below 50% of share capital due to impairment writedowns made as part of the year-end consolidated financial statement closing process.

GSO Capital Partners LP and Cyrus Capital Partners, LP committed to pay cash for €15 million of new ordinary shares at a price of NOK 2.24 per share prior to March 31. The company's board of directors has approved this private placement. Norske Skogindustrier will offer existing shareholders the opportunity to subscribe for shares in a subsequent repair offering.

GSO and Cyrus have committed to provide a new securitization facility of about €95 million. The facility will be secured by the receivables and inventory of the company’s Norwegian mills and related collection bank accounts and the inventory of the Golbey mill. The proceeds will be used to replace the SpareBank 1 Finans AS factoring agreements in Norway and for general corporate purposes in the operating subsidiaries of the group.

If requested by Norske Skogindustrier, GSO and Cyrus have committed to purchase for cash up to €10 million of senior secured debt instruments on or before Dec. 30, 2016.

Norske Skogindustrier has also started sales processes for the disposal of some non-core assets.

The company said these equity and liquidity initiatives in the total range of €120 million to €140 million will significantly strengthen the group's liquidity position going forward.

The equity and liquidity initiatives are not contingent on a successful outcome of the amended 2017 exchange offer.

Old exchange offer terms

Before the amendment, the company was offering the following to the holders of the 7% notes:

• An amount of exchange notes due Dec. 30, 2026 issued by Norske Skog AG 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.

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

• An amount of exchange notes due Dec. 30, 2026 issued by Norske Skog 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.

The interest rate was going to 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 offer, the company is seeking consents 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. 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 their favor.

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.

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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