WARREN, NJ, June 13--Formica Corp. announced that it has taken an important step necessary to implement the restructuring of its balance sheet and emerge from Chapter 11. It has signed a Stock Purchase Agreement with an investment group sponsored by Cerberus Capital Management L.P. and Oaktree Capital Management LLC under which they have committed to invest $175 million in the company.
Cerberus and Oaktree are investment management companies and the two largest holders of unsecured claims in Formica's Chapter 11 case. The company has received the support of its secured lenders for the transaction with Cerberus and Oaktree.
Under the Stock Purchase Agreement, the equity investment by Cerberus and Oaktree will be the basis for the company's Plan of Reorganization. Formica also said that it has submitted this agreement to the Bankruptcy Court for approval and, if necessary, procedures for entertaining higher or better offers. Formica said it expected to emerge from Chapter 11 before the end of the first quarter of 2004.
The proposed Plan of Reorganization to be implemented in conjunction with the Stock Purchase Agreement would provide for a reduction in the outstanding amount of the company's secured bank debt from over $300 million to approximately $127 million, utilizing $173 million of the $175 million investment. The Plan would also provide for the elimination of $215 million in pre-Chapter 11 unsecured bond debt.
Pursuant to the proposed Plan, Formica would emerge from Chapter 11 with less than $150 million in debt on a consolidated basis and $175 million in equity, compared to over $500 million in debt at the time of the Chapter 11 filing in March 2002.
Shareholders of the holding companies that now own Formica would not receive or retain any value under the proposed Plan of Reorganization. General unsecured creditors would have the option of receiving either their ratable share of $12.775 million in cash (resulting in an estimated 11.9% distribution on their allowed claims) or the right to participate in a rights offering to purchase their ratable share of up to $87.5 million in equity of the reorganized company. Implementation of the Plan is conditioned on confirmation by the Bankruptcy Court.
"This is a very important and exciting day for Formica," said Formica President and Chief Executive Officer Frank A. Riddick, III. "We are well on our way to resolving the balance sheet problem that necessitated our seeking relief under Chapter 11. The new investment and resulting reduction of the Company's debt level and interest expense will allow us to focus our financial resources on improving product offerings and operational capabilities, thereby allowing Formica to maintain and enhance its competitive position and better serve customers' needs in a challenging marketplace. The substantial investment by Cerberus and Oaktree is a tremendous vote of confidence in the company, its products and dedicated employees."
Riddick also noted that in 2002, despite a weak worldwide economy, Formica achieved results very close to its EBITDA targets (earnings before interest, taxes, depreciation and amortization), that it had substantially improved its service and delivery rates, and set safety records at all of its U.S. factories.
