Panolam noteholders, lenders agree to pre-packaged reorganization plan

By Caroline Salls

Pittsburgh, Oct. 1 - Panolam Industries International, Inc. has entered into a restructuring support agreement with affiliates of supermajority senior subordinated noteholders Apollo Capital Management and Eaton Vance Management, holders of a supermajority of the principal amount of the company's senior debt and senior lender agent Credit Suisse, according to an 8-K filed with the Securities and Exchange Commission.

The restructuring will be completed through a pre-packaged Chapter 11 bankruptcy filing.

The company said the restructuring will allow it to reduce the amount of debt on its balance sheet by $151 million and eliminate $16.2 million in annual cash interest payments on its senior subordinated notes.

According to the release, the support agreement requires the consenting debtholders to vote in favor of the proposed pre-packaged plan of reorganization.

"We are pleased that all creditor groups were able to agree to a consensual deal that will minimize the impact of this restructuring on the stakeholders that matter most - Panolam's customers, vendors and employees," Jason Perri of Apollo Capital Management said in the release.

Under the plan:

• The senior debt will be exchanged for a combination of cash and notes of the reorganized company;

• The senior subordinated notes will be exchanged for shares of common stock of the reorganized company;

• All existing equity interests will be cancelled in exchange for warrants to acquire shares of common stock of the reorganized company;

• The claims of all general unsecured creditors will be reinstated or unimpaired, meaning that the company will honor all obligations to its customers, pay all vendors and suppliers in the normal course of business and continue to pay wages and benefits to it employees as usual.

According to the restructuring support agreement, the company will obtain a $15 million revolving credit facility, which will mature on June 30, 2013 and accrue interest at the Eurodollar rate plus 600 basis points with a 2.5% Eurodollar floor and a $140.5 million first-lien term loan that will mature on Dec. 31, 2013 and bear interest at the same rate as the revolver.

In addition, the reorganized company will issue a $25 million second-lien note to crossover senior lenders.

This note will mature on June 30, 2014 and will accrue cash interest at 2% plus 10% paid-in-kind interest or, at the company's option under specified conditions, cash interest at 10%.

Panolam said it expects to launch a formal solicitation of votes for the plan from its creditors within roughly 10 days. Creditor voting will be completed within 30 days of the launch of the solicitation.

The company said it expects the plan to be confirmed by the bankruptcy court before the end of 2009.

Panolam is a Shelton, Conn., provider of decorative surfaces for commercial and residential interiors, store and store fixtures and furniture.

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