Nortek bondholders agree to restructuring; company to file bankruptcy

By Caroline Salls

Pittsburgh, Sept. 3 - Nortek, Inc. has entered into a debt restructuring and lockup agreement with a substantial portion of its bondholders under which the company will eliminate $1.3 billion in total debt, providing considerable financial strength and flexibility to its balance sheet, according to a company news release.

"This transaction will immediately rebuild Nortek's financial strength, providing us the flexibility for growth and a solid foundation for long-term stability," chairman and chief executive officer Richard L. Bready said in the release.

Nortek said the restructuring will be implemented through a pre-packaged Chapter 11 bankruptcy, which will be filed at the end of a consent solicitation period.

Under the agreement, holders of Nortek's 8½% senior subordinated notes due 2014 will exchange their debt for substantially all of the equity of the company.

Holders of parent NTK Holdings, Inc.'s 10¾% senior discount notes due 2014, Nortek's 9 7/8% series A and series B senior subordinated notes due 2011, and the lenders under NTK Holdings' senior unsecured loan agreement will also exchange their debt for equity in the company.

In addition, the debt under Nortek's 10% senior secured notes due 2013 will either be modified and receive some portion of the equity or reinstated. In either case, the original $750 million principal amount of the 10% notes will remain outstanding.

According to an 8-K filed with the Securities and Exchange Commission, the consideration received by the holders of the 10% notes will depend on whether this class votes to approve Nortek's pre-packaged plan of reorganization.

Creditor treatment

Specifically, creditors will receive:

• If the 10% noteholders class approves the plan, they will receive 5% of the new common stock and new 11% notes.

If this class does not approve the plan, the existing 10% notes will remain outstanding, and the indenture covering the notes will be reinstated;

• The holders of the $625 million principal amount outstanding of 8½% notes will receive 92% of the new common stock or 96% if the 10% notes indenture is reinstated;

• The holders of the $10 million principal amount outstanding of Nortek's 9 7/8% notes will receive 1.4% of the new common stock or 1.5% if the 10% notes indenture is reinstated;

• The holders of the $403 million principal amount outstanding of 10¾% notes will receive 1.2% of the new common stock and warrants to acquire 2.9% of the new Nortek common stock;

• The lenders under the NTK senior unsecured loan agreement will receive 0.8% of the new common stock and warrants to acquire 2.1% of the new Nortek stock; and

• Officers and key employees will receive equity awards representing a total of 10% of the new Nortek common stock.

Plan solicitation

Nortek said it has entered into an agreement with holders of at least 66 2/3% of the outstanding principal amount of the 8½% notes, as well as a substantial portion of the outstanding amount of the 10¾% notes and 10% notes.

The company said it expects to launch the formal process to solicit consent for the restructuring from the remaining holders of its debt no later than Sept. 15, and consents will be due 30 days from the launch date. Nortek said the restructuring is expected to be completed near the end of the year.

"To date, we have made great progress in these discussions with our debtholders," Bready said in the release.

"Throughout this period, it is our intention that trade creditors, suppliers and employees will continue to receive all amounts owed to them in the ordinary course of business.

"In addition, the agreement provides that allowed claims of trade creditors, suppliers and employees will be paid in full."

Forbearance agreement

As part of the agreement, the company has entered into a forbearance agreement with the lenders under its asset-based line-of-credit agreement in connection with its failure to make the $26.5 million semi-annual interest payment due Sept. 1 on the 8½% notes.

The forbearance period will expire on the earlier of Oct. 20 or the date the restructuring agreement is no longer in effect.

The notes indenture gives the company 30 days to make the payment before a default is triggered, but the noteholders that have executed the restructuring agreement have agreed not to exercise any default-related rights.

NTK Holdings is a diversified manufacturer of residential and commercial ventilation, HVAC and home technology convenience and security products. The company is based in Providence, R.I.

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