Home Products files Chapter 11; noteholders, shareholders to receive new common stock

By Caroline Salls

Pittsburgh, Dec. 20 - Home Products International, Inc. filed for Chapter 11 bankruptcy Wednesday with the U.S. Bankruptcy Court for the District of Delaware, and its shareholders and bondholders have agreed to support its plan of reorganization term sheet.

According to court documents, the purpose of the company's bankruptcy filing is to restructure its balance sheet by converting $116.05 million of funded public debt to equity.

Home Products said the filing became necessary when it was unable to make a $5.6 million interest payment on its 9 5/8% senior subordinated notes due 2008.

Home Products had $172.19 million in assets as of Dec. 2 and $217.38 million in debt.

The company listed HSBC, as bondholder agent, as its largest unsecured creditor, with a $122.22 million claim.

In connection with the filing, Home Products requested court approval of up to $60 million in debtor-in-possession financing from Bank of America, NA.

The DIP facility is comprised of a $60 million revolving credit facility, including an $8 million letter-of-credit subfacility.

The company will also have $11.5 million of incremental borrowing availability in excess of its -pre-bankruptcy credit agreement, subject to a $1.5 million minimum availability at all times.

Cash collateral proceeds must be used to repay the pre-bankruptcy credit facility.

The DIP facility will mature on June 30, 2007.

Interest will be Libor plus 175 basis points.

The company will pay 175 bps letter-of-credit and letter-of-credit guaranty fees.

Under the plan term sheet, Home Products must obtain exit financing to fund the plan and post-confirmation operations.

In addition, the reorganized company will issue $30 million in new 6% 10-year second-lien convertible notes.

The new convertible notes will carry a 20% conversion premium based on valuation of the new company on the plan effective date.

The notes will be non-callable for the first five years. After that, they will be callable at 105% during year six; 104% in year seven; 103% in year eight; 102% in year nine and 101% in year 10.

All noteholders and old stockholders will be eligible to participate in a rights offering for new Home Products International common stock, with clients of Third Avenue Management LLC backstopping 85% of the rights offering and stockholder SAC backstopping the remaining 15%.

Treatment of creditors under the plan will include:

• Holders of administrative and priority claims will be paid in full in cash;

• Intercompany claims will be cancelled;

• Bank of America's revolving credit facility claim will be satisfied either through the DIP or exit facility;

• Holders of old notes and contingent debt will have their debt cancelled and will receive 95% of the new common stock in the reorganized company;

• Holders of old stock will receive 5% of the new common stock in the reorganized company if they vote to accept the plan.

These creditors will have the option to receive cash instead of new stock, with the total cash paid under the cash-out option not to exceed $10 million.

Home Products is a Chicago housewares company. Its Chapter 11 case number is 06-11457.

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