Interstate Bakeries gives terms of new $171.6 million 10-year convertibles

By Caroline Salls

Pittsburgh, Nov. 3 - Interstate Bakeries Corp. outlined the terms of the convertible notes to be issued under its plan of reorganization in a T-3 filed Monday with the Securities and Exchange Commission.

Under the plan, the company will offer $85.8 million of 5% secured convertible PIK-election series A notes due 2018 and $85.8 million of secured convertible PIK-election series B notes due 2018 on the plan effective date.

The company will issue the series A notes to investor IBC Investors I, LLC, an affiliate of Ripplewood Holdings LLC, and/or its designees to be purchased by investors for cash at a total purchase price of $85.8 million.

The series B notes will be issued to holders of claims against Interstate and its subsidiaries and allocated among the company's senior secured creditors in accordance with the amounts of their pre-bankruptcy debt.

According to the T-3, IBC Investors will be entitled to receive 8.58 million shares of common stock upon conversion of the series A notes; 6.03 million shares of common stock upon exercise of series A warrants; and, in some circumstances, 670,089 shares of common stock upon exercise of series D warrants.

Meanwhile, the senior secured creditors will be entitled to receive 7.91 million shares of common stock upon conversion of the series B notes.

In addition, the senior secured creditors will receive series E warrants to purchase 670,089 shares of common stock of the company in some circumstances.

Also, on the plan effective date the pre-bankruptcy lenders will receive 4.42 million shares of common stock, or 50% of the company's equity interests, as well as series B and series C warrants to purchase 2.12 million shares of common stock.

In light of allocations to be made to the senior secured creditors, Interstate said only the plan investor is expected to own 10% or more of the company's voting securities on the plan effective date.

However, some of the senior secured creditors are expected to receive additional shares of common stock or warrants in their capacity as term loan lenders, so those creditors could ultimately own more than 10% of the voting securities.

Proceeds from the series A notes will be used to fund Interstate's plan of reorganization and for general corporate purposes. The series B notes will be issued to the senior secured creditors in partial satisfaction of their claims against the company.

As previously reported, the series A and series B warrants will have a strike price of $12.50, while the series C warrants will have a strike price of $10.00.

The Kansas City, Mo., bakery operator filed for bankruptcy on Sept. 22, 2004 in the U.S. Bankruptcy Court for the Western District of Missouri. Its Chapter 11 case number is 04-45814.

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