Granite Broadcasting plan of reorganization confirmed; preferred equity objections overruled

By Caroline Salls

Pittsburgh, May 18 - Granite Broadcasting Corp.'s pre-packaged plan of reorganization was confirmed Friday by the U.S. Bankruptcy Court for the Southern District of New York.

In his plan confirmation ruling, judge Allan L. Gropper overruled objections brought by the company's preferred equity holders.

In response to the objections, Gropper said Granite did propose the plan in good faith, and expert valuations and a plan proposal made by the preferred equity holders confirmed that there is no value in the company beyond its debt.

The preferred equity holders had argued that the plan undervalued Granite and paid the secured creditors more than the full amount of their claims, depriving the preferred equity holders of their appropriate recovery.

As previously reported, Granite expected to emerge from bankruptcy as a privately held company.

Under the plan, current secured debtholders will exchange their existing notes for a combination of $200 million of new notes and new common stock.

Current common and preferred stockholders will exchange their existing stock for shares of the newly reorganized company.

The company will issue 15 million shares of new common stock, with 11 million to be issued under the plan.

Granite will also issue five-year series A warrants to purchase 750,000 shares of new common stock at an exercise price of $32.37 per share, which represents 125% of the implied equity value, and five-year series B warrants to purchase 250,000 shares of new common stock at an exercise price of $36.26, which represents 140% of the implied equity value.

In addition, each eligible investor will have the opportunity to participate in a rights offering entitling the holder to subscribe for its portion of the rights of up to 1 million shares of the new common stock.

If the eligible investors do not fully subscribe to the rights offering, holders of the company's class B interests will have the opportunity to participate in the rights offering with a total subscription price of no more than $7.5 million.

To the extent the class B interest holders do not fully exercise the remaining rights, the rights will revert to the holders of secured claims and will be extinguished.

Plan creditor treatment

Treatment of creditors under the plan will include:

• Holders of debtor-in-possession claims will recover 100% in cash;

• Holders of $496.17 million of secured claims will recover 90.9% through a share of the secured term loan exit facility, 10 million shares of new common stock and rights to purchase more, and series A and series B warrants. Any rights that revert to secured claimants will be extinguished;

• Holders of Granite general unsecured claims will receive a share of $5 million in cash. Since these creditors voted to accept the plan, holders of deficiency claims against Granite will receive no distribution of property. The company has capped the maximum allowed general unsecured claims at $11 million;

• Holders of $47,426 of Granite convenience claims, $19,013 in KBWB convenience claims and $15,798 in WXON convenience claims will recover 100% in cash;

• Holders of $29.28 million in Malara guaranty claims, $28.67 million in KBWB general unsecured claims and $3.7 million in WXON general unsecured claims will receive no distribution under the plan;

• Holders of preferred interests will have their interests extinguished and will receive their share of 200,000 shares of new common stock and the right to purchase up to 500,000 shares of new common stock under series A warrants. In addition, some preferred stockholders who are accredited investors will receive the right to purchase up to 1 million shares of new common stock at the implied equity value; and

• Holders of class A interests and class B interests will have their interests extinguished and will receive a share of 100,000 shares of new common stock, the right to purchase up to 250,000 shares of new common stock under the series A warrants and the right to purchase up to $250,000 of new common stock under the series B warrants.

The company said it expects to obtain an exit facility consisting of a 51/2-year $200 million exit secured term loan and a five-year exit secured revolving credit facility in an amount equal to the amount needed to satisfy any outstanding balance under the DIP, plus $25 million, up to a cap of $50 million.

The proceeds of the revolver, together with those from the rights offering and cash generated from operations, will be used to repay any DIP balance, to fund plan payments and to meet working capital and other corporate needs.

Granite is a New York-based owner and operator of network-affiliated television stations. Its Chapter 11 case number is 06-12984.

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