School Specialty bankrupt; Bayside affiliate to credit bid for assets

By Caroline Salls

Pittsburgh, Jan. 28 - School Specialty, Inc. filed Chapter 11 bankruptcy on Jan. 28 in the U.S. Bankruptcy Court for the District of Delaware to complete the proposed sale of its assets as a going concern to an affiliate of Bayside Capital, Inc., according to a company news release.

The proposed purchase price for the assets is $95 million plus cash equal to the amount outstanding under an asset-based credit agreement and assumption of specified liabilities.

Stalking horse bidder and Bayside affiliate Bayside School Specialty, LLC would pay the $95 million portion of the purchase price in the form of a credit bid.

If Bayside Specialty is not ultimately the high bidder for the assets, the company would pay it a $2.85 million break-up fee.

Financing terms

In connection with the filing, the company said it has secured a new lending arrangement to be provided by existing asset-based lenders and a commitment for $50 million in additional capital in the form of debtor-in-possession financing from an affiliate of Bayside Capital.

This financing is designed to provide School Specialty with ample liquidity to operate the business and meet its ongoing obligations to customers, business partners, suppliers and employees through completion of the sale process.

According to an 8-K filed with the Securities and Exchange Commission, the initial borrowing under the Bayside facility will be $15 million.

In addition, upon final bankruptcy court approval, all unpaid amounts on a pre-bankruptcy Bayside credit agreement, including an early payment fee payable as a result of the acceleration of the pre-bankruptcy term loan agreement, plus unpaid interest, fees, costs and expenses, will be refinanced and converted into term loans under the Bayside credit agreement.

All borrowings under the Bayside credit agreement are required to be repaid on the earliest of June 30 and the date of termination of the credit agreement, whether through completion of a sale of substantially all of the company's assets or other termination events.

The $175 million asset-based credit agreement will bear interest at either the Base rate plus 275 basis points or Libor plus 375 bps.

The ABL facility will mature on June 30.

The company said it expects to complete the sale process in about 60 to 90 days.

Looking ahead

"We are pleased to have reached these agreements with Bayside and are confident School Specialty's business has a bright future," School Specialty president and chief executive officer Michael P. Lavelle said in the release.

"We have made good progress in our turnaround strategy to strengthen School Specialty's business by realigning the organization to deliver better value for our customers and improving the quality and efficiency of operations.

"In School Specialty, we have a company with excellent potential but with a burdensome amount of debt on our balance sheet.

"The actions we are announcing today allow us to strengthen our financial condition as we continue transforming School Specialty's business for the future, including building our brands and product offerings and positioning our business for long-term success as the funding environment improves."

School Specialty said its Canadian subsidiaries are included in the proposed sale but are not part of the Chapter 11 filings.

The company said it is not sure whether School Specialty shareholders will receive any distribution from proceeds of a sale and whether these securities will have any value following the Chapter 11 case.

Debt details

According to court documents, School Specialty had $$494.52 million in total assets and $394.59 million in total debt as of Oct. 27.

The company's largest unsecured creditors are:

• Indenture trustee Bank of New York Mellon Trust Co. NA of Chicago, with a $157.5 million unsecured debt claim;

• A T Clayton & Co., Inc. of Stamford, Conn., with a $4.3 million supplier claim;

• Crayola LLC, based in Easton, Pa., with a $4.26 million supplier claim;

• Quad/Graphics Inc. of Sussex, Wis., with a $3.11 million supplier claim;

• Pacon Corp. of Appleton, Wis., with a $1.29 million supplier claim; and

• Dixon Ticonderoga Co. of Heathrow, Fla., with a $1.23 million supplier claim.

MSD Capital, LP is School Specialty's largest shareholder, holding a 15% interest in the company.

The company's financial adviser is Perella Weinberg Partners LP, its restructuring adviser is Alvarez & Marsal NA, LLC, and its restructuring counsel is Paul, Weiss, Rifkind, Wharton & Garrison LLP and Young Conaway Stargatt & Taylor, LLP.

School Specialty is a Greenville, Wis.-based education company. The Chapter 11 case number is 13-10125.

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