AbitibiBowater again extends exchange offers for Bowater notes

By Susanna Moon

Chicago, March 23 - AbitibiBowater Inc. said it once more pushed back the expiration of the private offers to exchange some outstanding series of unsecured notes issued by its Bowater Inc. subsidiary for new notes in a private placement.

The offers and consent solicitation will now expire at 11:59 p.m. ET on March 25, extended from March 20. They were announced on Feb. 9.

The notes eligible for exchange are Bowater's 9% debentures due 2009, floating-rate senior notes due 2010, 9½% debentures due 2012, 6½% notes due 2013 and 9 3/8% debentures due 2021 as well as Bowater Canada Finance Corp.'s 7.95% notes due 2011.

As of March 20, investors had tendered 60.3% of the outstanding 9% debentures, 60.8% of the floaters, 67.8% of the 7.95% notes, 70.2% of the 9½% debentures, 80.2% of the 6½% notes and 40.4% of the 9 3/8% debentures.

As of March 13, investors had tendered 54.5% of the outstanding 9% debentures, unchanged from March 9; 58.2% of the outstanding floaters, down from 63.8% on March 9; 64.9% of the outstanding 7.95% notes, up from 64.8% on March 9; 68.6% of the outstanding 9½% debentures, unchanged from March 9; 79.2% of the outstanding 6½% notes, unchanged from March 9; and 40.4% of the outstanding 9 3/8% debentures, unchanged from March 9.

The company is soliciting consents to amend the indentures governing the existing notes to eliminate the covenants relating to liens, secured debt and sale/leaseback transactions.

Holders of the 9% debentures who participate in the exchange offer will receive 10% second-lien notes due Jan. 31, 2012, and holders of the remaining existing notes will receive 10½% third-lien notes due March 31, 2012.

Specifically, in exchange for their notes, each holder of Abitibi notes will receive a pro rata share of:

• About $321 million of 12½% first-lien notes due March 31, 2014, being $75 in principal amount of the first-lien notes for each $1,000 principal amount of Abitibi notes exchanged, except that any noteholder of 15½% notes due 2010 will receive an additional $100 in principal for each $1,000 principal amount of July 2010 notes exchanged;

• About $810 million of 11% second-lien notes due June 30, 2014, making up $270 in principal amount of second-lien notes for each $1,000 principal amount of Abitibi notes exchanged, except that any noteholder of July 2010 notes will receive an additional $50 in principal amount of second-lien notes for each $1,000 principal amount of the July 2010 notes exchanged;

• About 86.7 million shares of AbitibiBowater, made up of 29.422 shares for each $1,000 principal amount of Abitibi notes exchanged and transferred;

• A series of warrants to purchase 76.9 million warrant shares at an exercise price equal to $1.00 per warrant share with a term of 18 months, being 26.107 series A warrants for each $1,000 principal amount of Abitibi notes exchanged and transferred;

• A series of warrants to purchase about 76.9 million warrant shares at an exercise price equal to $1.25 per warrant share with a term of two-and-a-half years, being 26.107 series B warrants for each $1,000 principal amount of Abitibi notes exchanged and transferred; and

• A series of warrants to purchase about 76.9 million warrant shares at an exercise price equal to $1.50 per warrant share with a term of five years, being 26.107 series C warrants for each $1,000 principal amount of Abitibi notes exchanged and transferred.

Abitibi-Consolidated said it will issue first-lien notes to noteholders on account of any accrued interest under the Abitibi notes up to and including April 1 on a dollar-for-dollar basis.

In addition, as part of the recapitalization, Abitibi-Consolidated will offer $388.9 million total principal amount of first-lien notes and warrants to purchase about 222.2 million warrant shares at an exercise price equal to $1.25 per warrant share with a term of five years for a total purchase price of about $350 million.

According to a news release, qualifying noteholders will be entitled to participate in the concurrent offering in respect of up to a total purchase price of about $100 million of first-lien notes.

Subject to proration, for each $1,000 principal amount of Abitibi notes held on the claims measurement date, qualifying noteholders shall be entitled to submit $33.95 in cash and shall receive $37.72 of first-lien notes and 21.553 series D warrants.

As previously reported, for each $1,000 principal amount of notes tendered and accepted, the company will issue $750 of exchange notes for the 9% debentures, $650 of exchange notes for the floating-rate notes, $550 of exchange notes for the 9½% debentures, $525 of exchange notes for the 6½% notes, $500 of exchange notes for the 9 3/8% debentures and $600 of exchange notes for the 7.95% notes.

The new notes will be issued by Bowater Finance II LLC and guaranteed by AbitibiBowater, Bowater, Bowater Newsprint South LLC and by some other subsidiaries of Bowater and Newsprint South.

Private notes offering

Holders of existing notes who tender some or all of their notes in the exchange offers may also subscribe for a portion of Bowater Finance's new 15½% first-lien notes due Nov. 15, 2011 in a concurrent notes offering.

In addition to the 15½% first-lien notes, holders who subscribe will receive an additional $50 principal amount of exchange notes and a subscription fee payable in an additional principal amount of 15½% first-lien notes.

The maximum total subscription amount for 15½% first-lien notes that will be accepted is $211.2 million.

Separately, Bowater Finance has entered into a note purchase agreement with a private institutional investor under which the investor has agreed to purchase $80 million principal amount of the 15½% first-lien notes at par in a private placement.

Proceeds from the concurrent notes offering and the additional private placement will be used to repay amounts outstanding under Bowater's bank credit facilities.

The exchange offers are conditioned on the receipt of more than 97% in total principal amount of 9% debentures and floating-rate notes and greater than 50% in total principal amount of the remaining existing notes. This condition may be waived by Bowater Finance under some circumstances.

The exchange offers are being made only to qualified institutional buyers inside the United States and to some non-U.S. investors located outside the United States.

Sale of interest in hydroelectric facility

AbitibiBowater also announced that it signed a non-binding agreement with Hydro-Quebec for the sale of its 60% interest in the hydroelectric facility located on the Manicouagan River for gross proceeds of C$615 million.

"This transaction is a key step in AbitibiBowater's overall plan to ensure greater liquidity and financial flexibility," David J. Paterson, president and chief executive officer, stated in the release.

"Deleveraging the company's balance sheet is important to all AbitibiBowater stakeholders."

Backstop commitment

AbitibiBowater said a new investor has agreed to provide a backstop commitment of $100 million for up to $111.1 million of the company's 12½% first-lien notes due 2014 and up to 63.5 million series D warrants to purchase one common share per warrant at $1.25 per share.

The amount of the backstop commitment that is funded by the new investor will depend on the extent to which unsecured noteholders participate in the concurrent offering.

The backstop party will also receive a backstop commitment fee in an amount of $50 of first-lien notes and 53.895 series A warrants, 53.895 series B warrants and 53.895 series C warrants for each $1,000 committed only in the event the recapitalization is completed.

The backstop commitment was made as part of and under the terms of AbitibiBowater's previously announced concurrent offering made in connection with the recapitalization.

As previously announced, some investors have provided binding commitments to subscribe for $150 million of the concurrent offering if a total of $250 million of the $350 million concurrent offering has been committed.

In addition, additional noteholders holding $164 million in eligible unsecured notes issued by Abitibi-Consolidated and its subsidiaries have agreed to vote in favor of the recapitalization, bringing the total support to $1.2 billion, or 39% of the total outstanding. AbitibiBowater will continue to solicit additional support for the recapitalization from affected noteholders and lenders.

AbitibiBowater also said the Commercial Division of the Superior Court of Quebec in Montreal has granted an interim court order under the Canada Business Corporations Act in connection with the recapitalization. The court has called the respective meetings of the affected unsecured notes, secured notes and lenders for April 30 in Montreal and set April 1 as the record date to determine the affected stakeholders who are entitled to vote at the meetings and participate in the concurrent offering.

AbitibiBowater is a Montreal-based pulp and paper manufacturer.

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