Durango reaches agreement in principle on restructuring

By Jeff Pines

Washington, May 3 - Corporacion Durango SA de CV said it has reached an agreement in principle with its bank lenders and members of its ad hoc bondholders' committee on a restructuring plan.

The plan calls for unsecured creditors to swap their debt for at least one of five series of new notes. Durango, Mexico's largest containerboard manufacturer, will issue about $715 million in new notes.

Holders of Durango's guaranteed notes may select from series A, B, C-A and C-B notes. Series D notes will only be issued to creditors of the company's other debt not guaranteed by Durango's operating units. Vendors and suppliers will not be affected by the restructuring, the company said.

Series A notes will bear interest at Libor plus 300 basis points payable quarterly. The notes will mature Dec. 31, 2010. Durango can prepay the notes without a penalty or a premium starting on Dec. 31, 2005. The principal will be amortized on the following schedule: 5% in 2005, 12.5% in 2006, 15% in 2007, 15% in 2008, 25% in 2009 and 27.5% in 2010. Interest will be paid quarterly.

Series B notes are step-up notes. They will initially bear interest at 7.75% until Dec. 31, 2004. On Jan. 1, 2005 through Dec. 31, 2005, the rate increases to 8.75%. After Dec. 31, 2005, interest increases to 9.75% and remains at the level until the notes mature on Dec. 31, 2010. The notes will be callable starting on Dec. 31, 2005 at a declining premium of 4% of face value.

Series C-A and C-B notes will only bear interest if triggered by certain events. If one of these events were to occur, the interest rate would be 8% retroactively from the date of issue. The notes will mature on Dec. 31, 2012. Durango can redeem the notes at 50% of face value under certain circumstances.

Series D notes will bear interest at 10.5%. Interest will be compounded annually and will be payable upon maturity on Dec. 31, 2013.

Holders of the series A notes and series B notes will get a restructuring fee, payable on the issue date, in partial consideration for their agreement to forgive interest accrued after Aug. 15, 2003 on their existing financial debt. Those who select or receive the other notes will not get a restructuring fee.

Participating creditors also will get 17% of the company's equity on a fully diluted basis.

In addition, the plan calls for Durango to spend up to $43.5 million in a tender offer for the existing date at a price of $650 per $1,000 of principal amount.

If Durango does not restructure at least 97% of its unsecured debt, but gets at least two thirds acceptances from the senior unsecured debt holders, it will file for Chapter 11.

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