American Color Graphics, Vertis plans of reorganization approved, clearing way for merger

By Jennifer Lanning Drey

Portland, Ore., Aug. 26 - American Color Graphics and Vertis Holdings, Inc. received court approval for their pre-packaged plans of reorganization Tuesday from the U.S. Bankruptcy Court for the District of Delaware, according to an American Color Graphics news release.

American Color Graphics said it expects to emerge from bankruptcy within 10 to 20 days and will then complete its planned merger with Vertis, which expects to emerge by mid-September.

As previously reported, both companies filed pre-packaged plans of reorganization to implement a merger, under which American Color Graphics will become a wholly owned subsidiary of Vertis.

"Today's action brings us one step closer to realizing the benefits of merging our two great companies. We look forward to a bright future, better positioned to meet the challenges facing the industry, with great financial strength and new resources," Steve Dyott, chairman and chief executive officer of American Color Graphics, said in the release.

Under the joint plan, American Color Graphics and Vertis noteholders will exchange their notes for $550 million in new notes and substantially all of the equity in the combined company.

"We have completed the next step toward successfully restructuring our balance sheet and the merger of American Color Graphics into Vertis," Mike DuBose, chairman and chief executive officer of Vertis, said in a separate news release.

The consensual restructurings will reduce the combined company's debt obligations by $1 billion before transaction fees and restructuring expenses, according to the Vertis release.

Exit financing

The reorganization includes a $250 million senior secured revolving credit exit facility from GE Commercial Finance and a $400 million exit facility from Morgan Stanley Senior Funding, Inc., as lead arranger, to satisfy obligations under the plan, according to the releases.

Restructuring terms

Under the restructuring agreement:

• The holders of $350 million of Vertis second-lien notes will receive $350 million in new 13% four-year second-lien notes;

• The holders of $350 million of Vertis senior notes will receive $107 million of new 51/2-year 13½% PIK senior notes and roughly 57% of the new common stock of Vertis Holdings;

• The holders of $293.5 million of Vertis senior subordinated notes will receive $27 million of new senior notes of Vertis, 10% of the new common stock of Vertis Holdings and warrants to acquire 11.5% of the new common stock of Vertis Holdings;

• Vertis Holdings' existing common stock will be cancelled, and holders will receive no distribution;

• The holders of the $280 million of American Color Graphics notes will receive $66 million of the new Vertis senior notes and 33% of the new Vertis Holdings common stock;

• Holders of Vertis and general unsecured claims will receive full payment in cash;

• American Color Graphics non-interest-bearing notes will be cancelled;

• Holders of American Color Graphics equity interests will receive their share of cash equal to 0.05% of the reorganized equity value set in the company's disclosure statement; and

• Equity interests in American Color Graphics subsidiaries will be reinstated.

The companies previously said the financial restructurings will reduce the combined company's debt by roughly $725 million, excluding Vertis Holdings' mezzanine notes.

The more than $240 million in Vertis Holdings' mezzanine notes will no longer be an obligation of the company after the transaction closes.

American Color Graphics is a Brentwood, Tenn., pre-media and print company.

Baltimore-based Vertis provides print advertising and marketing solutions.

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