Reddy Ice files Chapter 11 bankruptcy; lenders, creditors support plan

By Caroline Salls

Pittsburgh, April 12 - Reddy Ice Holdings, Inc. filed Chapter 11 bankruptcy Thursday in the U.S. Bankruptcy Court for the Northern District of Texas after securing the support of a majority of its lenders and major creditors for a plan of reorganization.

According to a company news release, Reddy Ice's balance sheet restructuring will ensure strong financial footing for the future and allow operations to continue uninterrupted.

"We expect to emerge from this restructuring as a much stronger company that is well positioned for investment in growth and enhanced profitability," chief executive officer and president Gilbert M. Cassagne said in the release.

Reddy Ice said its financial position has been negatively affected by a weaker economic environment, higher commodity costs and heavy debt levels.

In 2011, as EBITDA declined, Reddy Ice began to explore alternatives to address its capital structure.

The company said these efforts have accelerated in recent months, with an informal committee of the largest holders of its existing 11¼% senior secured notes due 2015 and 13¼% senior secured notes due 2015 negotiating the terms of a debt restructuring.

In addition, Reddy Ice said an agreement has been reached with the holders of the majority of the principal amount of its existing 10½% senior discount notes due 2012.

Arctic Glacier acquisition

According to the release, the company's restructuring plan is intended to recapitalize its business and provide Reddy Ice with the opportunity to pursue a strategic acquisition of all or substantially all of the operations and assets of Arctic Glacier Income Fund and its subsidiaries.

As previously reported, Arctic Glacier filed for creditor protection under the Companies' Creditors Arrangement Act in Canada, and those CCAA proceedings have been recognized under a Chapter 15 bankruptcy case in the United States.

In its CCAA proceedings, Arctic Glacier is implementing a sale and investor solicitation process for its business and assets.

On March 28, Reddy Ice submitted a non-binding letter of intent for the purchase of all or substantially all of Arctic Glacier's operations and assets.

The company said in a court filing that significant creditor Centerbridge Capital Partners II, LP or one or more of its parallel funds and related vehicles have indicated interest in providing the entire amount of equity financing for the Arctic Glacier acquisition.

Under its proposed plan of reorganization, which is subject to bankruptcy court approval, Reddy Ice is seeking to pay unsecured trade vendors in full and provide its existing holders of common stock with a recovery, which would be increased if a transaction with Arctic is completed.

Creditor treatment

The proposed treatment of creditors under the plan would include:

• Holders of first-lien notes would retain those notes, which will governed by an amended first-lien notes indenture, provided that provided, that the plan sponsor's first-lien notes will be subject to sponsor equitization in the event of an Arctic termination;

• Second-lien notes would be exchanged for each holder's share of 6.09 million shares of reorganized Reddy Ice common stock and the right to purchase shares of reorganized Reddy Ice preferred stock in a rights offering. The second-lien notes deficiency claim would be treated as a general unsecured claim;

• Holders of first-lien notes guarantee claims would receive a guarantee from reorganized Reddy Holdings, which would secure the obligations of reorganized Reddy Corp. under the amended first-lien notes indenture;

• Holders of second-lien notes guarantee claims would receive the proceeds of an intercompany claim, but only to the extent necessary to make Reddy Holdings general unsecured claim settlement payments and specified transfers;

• Holders of discount notes claims would receive a share of a discount notes initial payment from amounts to which holders of second-lien notes claims and second-lien notes guarantee claims would otherwise be entitled.

On the three-month anniversary of the plan effective date, holders of discount notes claims would receive a share of a discount notes subsequent payment, also from amounts that would otherwise go to second-lien notes claimants and second-lien notes guarantee claimants;

If the Arctic acquisition is completed, holders of discount notes claims would also be entitled to receive a share of an Arctic acquisition discount notes payment from amounts that would otherwise go to the second-lien noteholders and second-lien notes guarantee claimants;

• Holders of Reddy Holdings general unsecured claims would receive a share of Reddy Holdings general unsecured claim settlement payments if they vote as a class to accept the plan. If they vote as a class to reject the plan, these creditors would receive no distribution; and

• Holders of interests, Reddy Corp. general unsecured claims and Reddy Corp. and Reddy Holdings subordinated 510(b) claims would receive no distribution.

However, the company said holders of second-lien notes claims and second-lien notes guarantee claims would make distributions to Reddy Holdings interest holders.

Reddy Ice said in a court filing that it was in lawsuit settlement discussions with representatives of another creditor constituency, and its Chapter 11 case is not classified as "pre-packaged."

The company said it will request court approval to emerge from bankruptcy in 45 days or less. Reddy Ice said its bankruptcy process is not expected to have an impact on its operations.

DIP financing

In conjunction with the bankruptcy filing, Reddy Ice said it has secured commitments from Macquarie Bank Ltd. for $70 million in debtor-in-possession financing to fund its working capital needs while in Chapter 11 and $50 million in exit financing to be available upon Reddy Ice's emergence from Chapter 11.

The DIP financing will mature on the earliest of an unspecified date in July, subject to an extension to October, 30 days after the entry of an interim order if the final order has not been entered, the effective date of a plan of reorganization and the acceleration of the DIP loans or termination of the unused DIP commitments.

Interest will be either Libor plus 700 basis points or the alternate Base rate plus 600 bps, at the company's election.

Debt details

According to court documents, Reddy Ice had $434.03 million in total assets and $530.83 million of total debt as of Dec. 31.

The company's largest unsecured creditors include:

• Trustee Wells Fargo Bank, NA of New York, with a $139.41 million 13¼% senior secured notes claim;

• Centerbridge Partners, LP of New York with a $29.32 million 13¼% senior secured notes claim;

• Courage Capital Management, LLC of Nashville, with a $27.85 million 13¼% senior secured notes claim;

• Arbiter Partners of New York, with a $20.65 million 13¼% senior secured notes claim;

• Fidelity Management & Research Co. of Boston, with a $19.95 million 13¼% senior secured notes claim;

• Trustee U.S. Bank NA of St. Paul, Minn., with an $11.74 million 10½% senior discount notes claim;

• T Rowe Price Associate, Inc. of Baltimore, with a $7.56 million 10½% senior discount notes claim;

• Avenir Corp. of Washington, D.C., with a $6.07 million 13¼% senior secured notes claim;

• Wells Fargo Securities, LLC of San Francisco, with a $4.22 million 13¼% senior secured notes claim; and

• Interlaken Management LLC of Wilton, Conn., with a $3.55 million 13¼% senior secured notes claim.

The company's legal adviser on the restructuring is DLA Piper LLP (US) and its financial advisers are Jefferies & Company, Inc. and FTI Consulting, Inc.

Reddy Ice is a Dallas-based manufacturer and distributor of packaged ice. The Chapter 11 case number is 12-32349.

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