FiberMark pulls reorganization plan, asks court to resolve claims trading dispute

New York, March 21 - FiberMark, Inc. withdrew its plan of reorganization and asked the U.S. Bankruptcy Court for the District of Vermont to intervene to resolve a dispute between its three biggest creditors over the trading of claims.

The company also asked the court to ensure the three creditors - AIG Global Investment Corp., Post Advisory Group, LLC and SilverPoint Capital, LP - pay their own legal bills to avoid any further cost to the Chapter 11 estate.

"At this point, the three multi-billion dollar financial institutions involved in the dispute are each fully capable of bearing the burden and cost of advocating their respective positions," FiberMark said in a filing with the court.

"Moreover, the debtors believe that the committee process has been consistently and inappropriately used as a forum to attempt to litigate intercreditor disputes, with a staggering cost to these estates, which should not be allowed to continue with respect to the claims trading issues."

Despite trying for two months to keep the confirmation process on track, FiberMark said it had to admit failure and withdraw its plan - and noted there is still no indication how long it will have to stay in Chapter 11 before a plan can be confirmed.

"As a result, the issues that have prevented resolution of the intercreditor dispute must be confronted and resolved one way or another, as expeditiously, and from the perspective of the estates, as inexpensively as possible," the company said.

The dispute over trading of claims concerns SilverPoint which, through its purchases, is now the largest creditor.

FiberMark commented that it believes "that, at the core of the current dispute is the desire of AIG and Post to increase their relative power vis a vis SilverPoint by refusing to accept, and requiring the creditors committee to disapprove, plan implementing documents that do not contain minority holder veto rights."

AIG and Post are claiming that SilverPoint violated the court-approved procedures for separating its trading area from its role on the creditors committee and, as a result, was trading based on confidential information, FiberMark's court filing said.

"Although the debtors have seen no evidence of any such violation and consider the allegation to be just the latest tactic in the ongoing fight between the parties for control of the case and control of the debtors if, as and when a plan of reorganization is confirmed, the debtors believe it is important that the issue be put to rest one way or another through proceedings before this court," FiberMark commented.

AIG and Post are also alleging impropriety in SilverPoint's purchase of claims from employees and management but again FiberMark said it sees no indication of problems - although it added that it has no direct knowledge and said that if the parties involved wish to litigate it would like to see the issue resolved quickly to avoid further delay to its emergence from Chapter 11.

FiberMark's disclosure statement was approved on Dec. 16. A confirmation hearing was originally scheduled for Feb. 28 but has been postponed multiple times because of the creditors' dispute before ultimately being adjourned indefinitely.

Previously the company told the court that the noteholders were deadlocked over corporate governance issues, including the terms of the documents governing the new common stock and the new notes. AIG and Post were opposing the plan because they say it does not reflect their understanding of earlier negotiations that had resolved a dispute which had threatened to disrupt approval of the plan.

Their previous support, they added, was dependent on the plan including provisions designed to protect minority holders of the notes and common stock to be issued by FiberMark in the reorganization -but not all those provisions have been included in the documents on the terms AIG and Post were expecting, the bondholders said.

They observed that Silver Point Capital claims to control more than 50% of FiberMark's notes.

In earlier filings, the two investors said they were now objecting to the plan of reorganization because it is not in compliance with the bankruptcy code; has not been filed in good faith; includes substantive consolidation which is not permissible because it is being carried out as a convenience, not to the creditors' benefit; artificially impairs some classes of creditors; improperly classifies some classes of creditors; and is not fair and equitable.

In particular, AIG and Post were concerned that there are no limitations in the proposed indentures for the new notes on transactions with affiliates and provisions of the Trust Indenture Act are waived. Together these shortcomings would allow Silver Point to unilaterally make changes, they say.

FiberMark also requested an order reinstating its exclusive periods and adding a 120-day extension to July 20.

FiberMark, a Brattleboro, Vt., producer of specialty fiber-based materials, filed for bankruptcy on March 30, 2004 in the U.S. Bankruptcy Court for the District of Vermont. Its Chapter 11 case number is 04-10463.

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