Recycled Paper Greetings makes pre-packaged bankruptcy filing; parent decries American Greetings' acts

By Caroline Salls

Pittsburgh, Jan. 2 - Recycled Paper Greetings, Inc. parent RPG Investment Holdings, LLC and funds affiliated with Monitor Clipper Partners, LLC said on Friday that American Greetings Corp. "has engaged in actions that RPGI and MCP believe are both unlawful and competitively damaging" in its effort to acquire Recycled Paper Greetings.

According to an RPG news release, Recycled Paper is an RPG company and Monitor Clipper is a controlling investor in Recycled Paper.

As previously reported, American Greetings has made an offer to acquire Recycled Paper through a pre-packaged Chapter 11 bankruptcy filing, which was made Friday in the U.S. Bankruptcy Court for the District of Delaware.

"We strongly oppose the actions taken by American Greetings leading to the filing today of the bankruptcy," RPG director and Monitor Clipper partner Travis Metz said in the release.

"We believe American Greetings has been engaged in a series of actions that reflect its own inability to compete effectively in the attractive humor segment of the greetings card market.

"Through its unlawful actions, we believe American Greetings is attempting to eliminate Recycled Paper Greetings as a competitor, in an effort to gain more widespread traction in the lucrative market segment in which Recycled Paper Greetings excels," he added.

RPG said it has taken several actions to combat American Greetings' allegedly unlawful activities, including filing a lawsuit in the U.S. District Court in Chicago that revolves around American Greetings' alleged unlawful purchase of a majority interest in Recycled Paper's senior debt, in direct violation of a contractual obligation not to do so.

Had American Greetings not breached this contract, RPG said it believes that it would have been successful in its efforts to allow Recycled Paper to remain independent and to allow Recycled Paper's creditors, shareholders, employees, artists and customers to each have achieved a better outcome than the one currently contemplated in the bankruptcy proceedings.

As previously reported, American Greetings has agreed to a purchase price that will include a combination of $54.7 million of new 7 3/8% notes due in 2016 and up to $18.4 million of cash, in addition to a $44.2 million investment previously made by American Greetings in July.

On Friday, the company asked the bankruptcy court to approve a $4.12 million break-up fee and a $1 million expense reimbursement, which will both be paid to American Greetings if it is not the high bidder at the auction for Recycled Paper's assets.

Recycled Paper's pre-packaged plan of reorganization is supported by its secured creditors.

Trade creditors are expected to be paid in full under the plan.

Creditor treatment

Specific treatment of creditors will include:

• Holders of debtor-in-possession financing claims, administrative expense claims, priority tax claims, compensation and reimbursement claims, other priority claims, general unsecured claims and secured tax claims will be paid in full;

• Holders of first-lien lender claims will recover 69.2% through a share of AG first-lien cash, AG notes and $19.55 million of new AG notes;

• Holders of second-lien lender claims will recover 11.3% through $13.15 million in new AG notes;

• Holders of equity interests in Recycled Paper and its subsidiaries will recover 100%; and

• Holders of contingent claims and insider claims, intercompany claims and equity interests in RPG Holdings will receive no distribution.

DIP facility terms

In connection with the bankruptcy filing, Recycled Paper has obtained a commitment for $10 million in debtor-in-possession financing from American Greetings.

Proceeds of the DIP loan will be used for working capital, general corporate purposes and to fund the company's bankruptcy case.

Interest on non-eurodollar loans will be equal to the greater of the Prime rate, the Federal Funds effective rate plus 50 basis points, the Libor rate plus statutory reserves plus 100 bps and 4%, plus 5% per year.

Interest on Eurodollar loans will be Libor plus statutory reserves plus 600 bps.

The DIP facility will mature on May 31.

Recycled Paper will pay a $200,000 fee to the DIP lenders and a $325,000 DIP agent fee.

According to court documents, the company had between $100 million and $500 million in both assets and debt.

Recycled Paper's largest unsecured creditors include Target, Brooklyn Park, Minn., with a $3.63 million trade debt claim and Walgreen Co., Deerfield, Ill., with a $1.13 million trade debt claim.

Recycled Paper Greetings is a Chicago-based greeting card company. Its Chapter 11 case number is 09-10002.

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