Portrait Corp. of America plan terms call for 11 7/8% notes exchange, payment in full of 14% notes

By Caroline Salls

Pittsburgh, Sept. 7 - Portrait Corp. of America, Inc.'s plan of reorganization calls for an exchange of the company's 11 7/8% senior notes due 2009 for shares of class A common stock and payment in full of its debtor-in-possession facility and 14% senior secured notes due 2009, according to an term sheet provided in an 8-K filing with the Securities and Exchange Commission.

As previously reported, Portrait Corp. made a pre-packaged Chapter 11 filing on Aug. 31 in the U.S. Bankruptcy Court for the Southern District of New York following a voluntary, consensual agreement with its key lenders on a restructuring plan.

The company will issue 10 million shares of new class A common stock and up to 40 million shares of new class B common stock for issuance under warrants.

Holders of tranche A warrants can purchase 22.5 million shares of the class B stock at $19.60 per share and holders of tranche B warrants can purchase 17.5 million shares at $25.34 per share.

Under the term sheet:

• The company's debtor-in-possession credit facility will be repaid in full or refinanced with the proceeds of a $45 million exit credit facility;

• The $50 million principal amount of the company's 14% senior secured notes due 2009 will be reinstated, repaid in full or refinanced;

• The 11 7/8% senior notes and the Agfa trade claims will be canceled and exchanged for 94.5% of the total outstanding shares of class A new common stock, subject to reduction for equity distributed to holders of other unsecured claims;

• Convenience unsecured claims of less than $5,000 will be exchanged for cash in equal to the lesser of 100% of the allowed amount of the claim and $5,000; provided that the total amount paid will not exceed $400,000;

• Other unsecured claims will be paid from cash in an amount to be designated by the company and the official committee of unsecured creditors, with the remainder, if any, to be paid in shares of new class A common stock;

• Goldman parent notes and Goldman Opco notes, together with any shares of preferred equity owned by Goldman, will be exchanged for 4.5% of the class A new common stock, as well as 50% of tranche A warrants to purchase new class B common stock;

• Preferred equity will be cancelled and exchange for 1.0% of the class A new common stock, 25.0% of the tranche A warrants and 50.0% of tranche B warrants to purchase class B new common stock; and

• Common equity will be canceled and exchanged for 25% of the tranche A warrants and 50% of the tranche B warrants.

As of the effective date of the plan, a new five-member board of directors will be appointed, including four directors to be appointed by the committee and the chief executive officer of the reorganized company, who will serve as chairman of the new board.

Portrait Corp. of America is a Matthews, N.C.-based portrait studio operator. Its Chapter 11 case number is 06-22541.

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