Portrait Corp. of America files plan of reorganization; second-lien noteholders to get new stock

By Caroline Salls

Pittsburgh, Feb. 1 - Portrait Corp. of America, Inc. filed its plan of reorganization and related disclosure statement Wednesday with the U.S. Bankruptcy Court for the Southern District of New York.

Under the plan, the company will issue new common stock, with the number of shares to be disclosed by the plan confirmation hearing.

The company will also issue new warrants for the right to purchase 18% of the shares of new common stock with an exercise price based on a $160 million equity value and a five-year expiration date.

Under its rights offering, the company will also issue $10 million of new five-year secured notes. The notes will have an interest rate of either 12% payable monthly in cash or 15% payable monthly in kind, at Portrait Corp. of America's option.

Treatment of creditors under the plan will include:

• Holders of $2 million in priority tax claims will recover 100% in cash either in full on the effective date or in equal installments over six years with interest, at the option of the company;

• Holders of $50 million in second-lien notes claims will recover 73% in a share of 100% of the new common stock in the reorganized company, a share of the rights consideration and retention of all amounts paid as adequate protection;

• Holders of $200 million in senior notes and other unsecured claims will receive a distribution of new warrants if they vote to accept the plan for an undetermined recovery amount;

• Holders of $5.7 million in convenience claims will recover 1% through payment of 1% of their claim in cash; and

• Holders of $69 million in Goldman note claims, as well as old preferred equity interests, old common equity interests and old subsidiary equity interests will receive no distribution under the plan.

The company said it expects to obtain an exit facility for working capital and other corporate purposes.

Portrait Corp. of America, a Matthews, N.C.-based portrait studio operator, filed for bankruptcy on Aug. 31. Its Chapter 11 case number is 06-22541.

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