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Norske Skog: The boards' final recapitalization proposal

LYSAKER, Norway (News release) -- Norske Skog announced a proposal, which has been shaped by discussions with all stakeholder groups and reflects the final terms, which the committee of senior secured bondholders have indicated their willingness to support, in an attempt to provide the group with a sustainable capital structure for the future. If this proposal is not successful, certain holders of the group's senior secured notes may conclude that the only realistic path open to them will to be to enforce their security. Therefore, the relevant boards consider this proposal to be the final opportunity to reach a consensual solution among all bondholders and shareholders. So far, more than 65% of the secured bondholders and major shareholders of the group have indicated their willingness to support the recapitalization proposal upon launch.

"It has been an intensive negotiation period between the various stakeholders. It is the board's assessment that this is the only implementable consensual proposal given the unsecured bondholders and the shareholders' positions. I accordingly urge all stakeholders of the Norske Skog group to support the recapitalization proposal, as all other alternatives will entail less value and complicated insolvency processes", says Mr. Christen Sveaas, chairman of Norske Skogindustrier ASA.

The proposal seeks to strike a balance between the different interests of the stakeholder groups, as well as to provide for a recapitalized Norske Skog that will be financially resilient and able to sustainably serve the interests of all stakeholders going forward.

"The new consensual proposal will give more value to unsecured bondholders and shareholders than the board's proposal as of 18 September 2017. Although the new proposal also will result in significant losses for the group's bondholders and material dilution for its shareholders, all other options will be worse for the unsecured bondholders and the shareholders. If the recapitalization proposal is effected, it will provide a solid platform for our seven business units in the future," says Mr. Christen Sveaas.

The key terms of the proposed recapitalization transaction are:
- Issuance of a new senior secured EUR 250 million bond loan carrying 8.5 % interest with a 2022 maturity to the owners of the EUR 290 million bond loan and the EUR 100 million NSF-facility. The new bond loan will have the same collateral security as today's secured debt. The existing claims of the secured bond loan holders and NSF-lenders in excess of EUR 250 million, including accrued interest, will be converted to equity.

- The conversion into equity of all outstanding unsecured bond debt amounting to approximately EUR 500 million including accrued interest.

- After such conversions, the equity ownership of Norske Skogindustrier ASA will be split as follows: a. Secured note holders: 91.0 % b. Unsecured noteholders: 6.3 % c. Existing shareholders: 2.7 %

- The board will propose an equity offering by Norske Skogindustrier ASA of up to approximately NOK 500 million with preferential rights for existing unsecured bondholders and shareholders, allocated by approximately NOK 300 million to the unsecured bondholders and approximately NOK 200 million to the shareholders. If fully subscribed, this will entail an increase in their ownership interest from 9 % to approximately 28 %. The subscription price will be set at a valuation of 6x the revised 2017 GOE guidance of EUR 75 million.

- Warrants will be issued for up to 10 % of the equity in Norske Skogindustrier ASA to those who have subscribed to the above equity offering. The warrants entitle the holders to subscribe for shares if the sum of the group's average net debt and market value exceeds EUR 525 million in a consecutive period of 6 months prior to 30 June 2019. The subscription rights expire worthless on 30 June 2019 if not exercised.

If the proposal is successful, the transaction will reduce the group's gross debt from approximately NOK 9 billion to approximately NOK 3 billion. Annual cash interest costs will be reduced from approximately NOK 600 million to approximately NOK 200 million.

The bondholders have 7 business days, until Thursday 19 October 2017 (17:00 CET), to accept the proposal. The proposal will be implemented by creditor schemes of arrangement undertaken in the English courts. Such schemes of arrangement require the approval of a majority in number and 75 % in value. The transaction will also need the support of existing shareholders of Norske Skogindustrier ASA, with a 2/3 majority in an extraordinary general meeting (to be called for shortly after the expiry of the consent solicitation offer period) as well as the support of the holders of the EUR 100 million NSF facility due in 2020 and the perpetual notes due in 2115.

If the recapitalization proposal is not successful, it is likely that the boards of directors of Norske Skogindustrier ASA, Norske Treindustrier AS, and Norske Skog Holding AS will file for voluntary or compulsory debt negotiation proceedings or bankruptcy in Norwegian courts. This will in all likelihood result in the loss of all value for the unsecured bondholders and the existing shareholders. Therefore, these boards recommend that all bondholders and shareholders approve the proposal.

If the proposal is not successful, it is likely that the secured note holders will conclude that the only realistic path open to them will be to enforce upon their security over the shares in Norske Skog AS, which owns all operating units. Consequently, the business operations of the group will be transferred to new owners with little or no recovery for the unsecured bondholders and the existing shareholders. "It is very important for us to reiterate to all of our customers, suppliers, employees and other stakeholders of the Norske Skog group that the business operations at our seven paper mills will continue as normal during this process. Our customers, suppliers and other business partners will continue to receive high quality products and the best service from Norske Skog without interruption through this final lap of the recapitalization process" said Mr. Lars P. S. Sperre, President and CEO of the Norske Skog group.

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