Manistique Papers seeks OK for $5 million DIP financing by mBank

By Jim Witters

Wilmington, Del., Sept. 21 - Manistique Papers Inc. is seeking court approval for a $5 million debtor-in-possession credit agreement with mBank, according to documents filed Tuesday in the U.S. Bankruptcy Court for the District of Delaware.

Under the agreement filed Sept. 20, the DIP would carry an interest rate of the Wall Street Journal Prime rate plus 1%, with a floor of 4.25%.

The maturity date for the DIP facility is Dec. 31, 2011.

mBank will receive post-petition first-priority liens on unencumbered assets of the debtor, priming liens on collateral securing the pre-petition loan held by the DIP lender and superiority administrative expense claims.

Upon interim approval of the DIP facility, the debtor may borrow up to $2 million.

A hearing on the DIP agreement is scheduled for 2:30 p.m. ET on Sept. 28.

mBank of Manistique, Mich., stepped forward in late August when Manistique faced conversion to Chapter 7 bankruptcy and assumed the Manistique's $11.1 million debt with RBS Citizens NA.

RBS cut off the use of cash collateral before the Chapter 11 filing, forcing Manistique to close its plant. The debtor's agreement with mBank granted access to cash collateral sufficient to restart manufacturing operations. Paper production recommenced Sept. 19, according to court documents.

The DIP motion states the access to cash collateral remains insufficient to continue operations as the debtor seeks a buyer or pursues other restructuring transactions.

As part of the DIP agreement, the debtor will decide no later than Oct. 15 whether to pursue a sale or a plan process.

If a sale process is chosen, the DIP agreement calls for an auction on or before Dec. 15 and a sale order on or before Dec. 20, with closing by Dec. 23.

In the DIP motion, Manistique states it owes about $33 million to Merit Mezzanine Fund IV LP and Merit Mezzanine Parallel Fund IV LP. The debtor owes about $13.3 million in unpaid accounts payable, $400,000 in long-term environmental liabilities and $850,000 in management fees due Remark Paper Co. Inc.

Manistique Papers, a Manistique, Mich., recycled-fiber specialty paper producer, filed for bankruptcy on Aug. 12. Its Chapter 11 case number is 11-12562.

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