School Specialty wins approval of termination fee dispute settlement

By Caroline Salls

Pittsburgh, Oct. 31 - School Specialty, Inc. received court approval of a stipulation that resolves a dispute related to a contested early termination fee deposit, according to an 8-K filed Thursday with the Securities and Exchange Commission.

The parties to the stipulation include the reorganized School Specialty debtors, the company's official committee of unsecured creditors and Bayside Finance, LLC.

School Specialty said it recorded a $25.05 million third-quarter charge related to the acceleration of its term loan credit agreement with Bayside, including an early payment fee.

The charge was triggered by the company's non-compliance with a minimum liquidity covenant, and the early payment fee represented the present value of all interest payments due to Bayside during the term of the credit agreement.

The company said it incurred $1.35 million of interest expense related to the $25.05 million early payment fee.

According to the 8-K, School Specialty's debtor-in-possession credit agreement required $25 million to be placed in escrow as a deposit for the early termination fee payable to Bayside, but the committee contested Bayside's entitlement to the funds.

School Specialty said the U.S. Bankruptcy Court for the District of Delaware ruled that Bayside was entitled to the funds, but the committee contested the ruling and filed an appeal in the U.S. District Court for the District of Delaware.

Subsequent to the end of the first quarter of fiscal 2014, the escrow amount, including interest, was released to Bayside, and additional interest accruals ceased as of the release date.

Under the settlement, the parties agreed that the amount of the early payment fee is $21 million, and Bayside agreed to remit $5.4 million to the reorganized debtors, representing the difference between the amount previously released to Bayside and the agreed amount of the early payment fee.

The company said the amount remitted by Bayside consists of a recovery of interest and a reduction of the early payment fee.

The committee and the reorganized School Specialty debtors also agreed to withdraw related proceedings, the reorganized debtors agreed to pay some expenses incurred by Bayside, and the parties have agreed to a mutual release of claims, the 8-K said.

School Specialty, a Greenville, Wis.-based education company, emerged from bankruptcy on June 11.

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