A.M. Castle announces exchange offers to refinance notes, convertibles

By Marisa Wong

Morgantown, W.Va., Jan. 15 – A.M. Castle & Co. announced that, as part of an overall plan to refinance its public debt, it has begun a private exchange offer and consent solicitation to exchange new 12¾% senior secured notes due 2018 for its outstanding 12¾% senior secured notes due 2016.

As a part of the refinancing plan, the company has entered in separate transaction support agreements with holders of more than 57% of the aggregate principal amount of the existing 12¾% notes due 2016 and 78% of the aggregate principal amount of its 7% convertible senior notes due 2017 to refinance its public debt, according to an 8-K filed Friday with the Securities and Exchange Commission.

Under the support agreements, the company has also agreed to effect an exchange offer of new 5.25% senior secured convertible notes due 2019 for the existing 7% convertible notes by June 30.

The company will not receive any cash proceeds in connection with the refinancing plan.

President and chief executive officer Steve Scheinkman commented in a press release, “Upon the acceptance of the exchange offer by our noteholders, and the subsequent exchange of the convertible notes under the terms of the support agreements, we will have successfully extended the maturity of a substantial portion of our public debt for up to two years and will have de-levered our balance sheet by up to $17.25 million.

“In addition, under the terms of the new convertible notes agreed to in the support agreements, we will have a further de-levering opportunity pursuant to our right to cause the conversion of the new convertible notes by exercising a new optional redemption right in the event that our stock price is in excess of 130% of the adjusted conversion price of $2.25 per share.

“We have further plans to meaningfully reduce our debt through the continued reduction of inventory and asset sales, which would include the sale of our subsidiary, Total Plastics, Inc.”

Scheinkman added, “In total, including the exchange offer planned for our convertible notes and sales of underperforming and non-core assets, we are targeting a reduction of our total outstanding indebtedness of up to $100 million, which when coupled with our operational restructuring, we believe will improve current operating performance and position the company for future growth.”

Senior notes exchange offer

The new 2018 notes being offered in exchange for the existing 2016 notes have substantially the same terms as the existing notes, except for, among other things, the following:

• The new notes effectively extend the maturity date of the old notes to Dec. 15, 2018, unless Castle is unable to both (a) complete the exchange of a portion of its existing convertible notes on or prior to June 30 and (b) redeem, on one or more occasions, an aggregate of at least $27.5 million principal amount of the new 2018 notes on or prior to Oct. 31, 2016, using available cash or proceeds from asset sales, in which case the maturity date of the new notes will be Sept. 14, 2017;

• The new notes will provide that, whether or not the special redemption condition is satisfied, the company will have an obligation to effect special redemptions using designated asset sale proceeds or other permissible funds until the aggregate amount of special redemptions equals $40 million;

• The new notes will contain modifications to the asset sale covenant. The company is not to use any net proceeds from asset sales outside the ordinary course of business to redeem, repay or prepay the existing 2016 notes or the existing 7% convertibles;

• Granting of a third-priority lien on the collateral securing the new notes for the benefit of the new convertibles will be a permitted lien under the indenture; and

• The new notes will include an event of default if Castle does not complete the private convertible note exchanges by June 30.

In conjunction with the Rule 144A/Regulation S exchange offer, the company is soliciting consents to proposed amendments to the existing 2016 notes that would eliminate substantially all restrictive covenants and some events of default and release all of the collateral securing the existing notes.

The company said it will use cash on hand to fund the consent payment.

More exchange offer details

The exchange offer for the senior notes will expire at 11:59 p.m. ET on Feb. 12.

Holders who tender and deliver their consents by 5 p.m. ET on Jan. 29, the early tender date, will receive an additional consent payment of $20.00 in cash per $1,000 principal amount of notes tendered.

The offer is conditioned on the receipt of tenders and consents of at least 66 2/3% of the existing notes by the early tender date and the receipt of the required consent from lenders under the company’s senior secured credit facility to the refinancing transactions.

Tenders may be withdrawn prior to 5 p.m. ET on Jan. 29.

The company reserves the right to waive conditions to the offer, including the minimum participation condition.

Under the support agreements, holders of $120.2 million of the existing notes have agreed to tender their notes in the offer. Of that amount, $27.5 million belongs to holders affiliated with the company who are therefore ineligible to participate in the consent solicitation. Because ineligible existing notes are not considered outstanding for the purpose of approving the consent solicitation, the outstanding amount of 2016 notes is in effect $182.5 million.

The proposed amendments require the consent of holders of at least 66 2/3% of the outstanding existing notes, or about $121.7 million. As of Friday, supporting holders of roughly $92.6 million of existing notes that are eligible to participate in the consent solicitation have agreed to tender their notes and give their consents to the amendments.

Holders who wish to receive a copy of the eligibility letter for the exchange offer may contact D.F. King & Co., Inc. (800 591-8269 or 212 269-5550 for banks and brokers, cas@dfking.com).

Convertibles exchange offers

The support agreements cover private exchanges in which the company has agreed to issue new 5.25% convertibles for the existing 7% convertible notes and a registered exchange offer in which the company will offer to issue new 5.25% convertibles to all holders of outstanding 7% convertibles other than the supporting holders.

The private exchanges and registered exchange offer will be carried out on substantially identical terms.

For each $1,000 principal amount of existing convertibles tendered, an exchanging holder will receive $700 principal amount of new notes, plus accrued interest.

The new convertible notes will mature on Dec. 31, 2019 and will bear interest at a rate of 5.25% per year.

The new notes will initially be convertible into common stock at a conversion price of $2.25 per share.

A.M. Castle is a distributor of specialty metal and plastic products, value-added services and supply-chain services based in Oak Brook, Ill.

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