Metalico exchanges convertible notes for three new series, amends loan

By Marisa Wong

Madison, Wis., Oct. 21 – Metalico, Inc. closed a restructuring of its major institutional debt that significantly reduces its leverage with an equity conversion and an exchange of new 10-year convertible notes and stock rights for the balance of its previously outstanding convertible notes, according to a company press release.

The company said it also amended its senior secured financing agreement. As a result of the note restructuring and the financing agreement amendment, Metalico’s previously announced payment and covenant defaults have been waived and a standstill period invoked in July under the terms of a subordination agreement between the company’s senior secured lenders and the holders of its convertible notes has been terminated.

Metalico’s convertible notes, originally issued in the principal amount of $100 million in 2008, had an outstanding balance of $23.4 million as of June 30.

On Oct. 17, noteholders converted $10 million of the notes into common stock at a rate of about $1.00 per share.

Under an exchange agreement dated Oct. 21, the holders exchanged the remaining principal balance plus accrued interest, totaling roughly $14.7 million, for three new series of convertible notes and a right to receive additional common shares in the event the company’s stock falls below certain values, determined at the 40th trading day after the date of the exchange agreement.

The aggregate principal amounts of each of the series A and series C new convertible notes is about $4.5 million, and the aggregate principal amount of the series B new convertible notes is about $5.7 million.

The new convertibles mature on July 1, 2024 and bear interest, payable in kind, at a rate of 13.5%. The new interest rate is applicable retroactively to balances under the original convertible notes as of July 1.

Portions of the new notes may be paid from proceeds of Metalico’s previously announced planned divestiture of non-core assets.

The series A convertibles may be converted into shares of common stock at any time at a rate of $1.30 per share.

They are not callable prior to July 1, 2017 but may be redeemed in whole or in part after that date, subject to a premium payable in additional shares of stock.

The series B and series C convertibles will be assigned their conversion rates on the determination dates of Dec. 31 and April 30, 2015, respectively. The conversion rate will be 110% of the weighted average price of Metalico stock for a 30-day trading period including the 15 trading days prior to and the 15 trading days beginning on the applicable determination date.

All or a portion of the series C and series B convertibles may be redeemed by the company, in that order, from some of the proceeds of the company’s previously announced planned divestiture of non-core assets.

The new convertible series provide for “true-ups” of shares at a discount in the event the trading price of Metalico stock falls below certain levels during a 20-day trading period following the redemption date.

Amended secured loan

In connection with the restructuring of its convertible note debt, Metalico also amended its senior secured financing agreement. The changes include increases to fees and applicable margins over certain interest rates, a resetting of a financial covenant and consent to the note restructuring.

The senior lenders also received an additional fee of $3.5 million that is payable either in cash at maturity or, at the holder’s option, in shares of the company’s stock under a warrant issued at closing.

The lenders’ warrant has a 10-year term and is exercisable for up to 3,810,146 shares of Metalico stock at an exercise price of $0.9186 per share. It is also exercisable on a cashless basis.

The company is required to seek stockholder approval for the right to issue more than 20% of its outstanding stock as a result of potential issuances under the exchange agreement and the new convertible notes. The company said it will seek stockholder approval by Dec. 20.

If stockholder approval is not obtained by that date, Metalico is required to call additional special meetings of stockholders until approval is obtained, provided that the company is not obligated to hold more than two special meetings in addition to the regular annual meeting in any given calendar 12-month period.

If the company is unable to issue the additional shares due under the note exchange in compliance with NYSE MKT rules within 10 days of the issuance date, the company will instead increase the outstanding principal amount of the series B notes or, if no principal amounts are then outstanding under the series B notes, the principal amount of the series A notes. The company would similarly be obligated to pay cash in lieu of stock that would be otherwise payable under the warrant.

Metalico is a Cranford, N.J.-based holding company with operations in two principal business segments: ferrous and non-ferrous scrap metal recycling and fabrication of lead-based products.

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