Smart Papers plan of reorganization term sheet approved

By Caroline Salls

Pittsburgh, Aug. 24 - Smart Papers, LLC obtained court approval to execute a term sheet for a plan of reorganization under which it will sell the company to Plainfield Special Situations Master Fund Ltd. for $40 million, according to a Wednesday filing with the U.S. Bankruptcy Court for the District of Delaware.

The parties to the plan term sheet include the company, its official committee of unsecured creditors, Wachovia Capital Finance, NA, International Paper Co. and Plainfield Special Situations Master Fund Ltd.

Under the term sheet, Smart Papers will file a plan of reorganization and related disclosure statement by Sept. 6.

Plainfield will have the exclusive right to pursue the plan with other parties, and no other sale transaction or plan will be allowed.

On the effective date of the plan, the company's assets will be transferred to one or more "Newco" entities to be designated by Plainfield.

Each of the parties must approve the plan solicitation documents, and each will sign a letter recommending that general unsecured creditors vote to accept the plan.

Under the plan, 92.5% of the equity interests in the reorganized company will be issued to Plainfield and the remaining equity interests will be transferred to a liquidating trust for the benefit of general unsecured creditors.

The liquidating trust will also be funded by the company's claims and causes of action and $200,000 in cash.

In addition, Plainfield can purchase the remaining equity from the liquidating trust any time before 90 days after Dec. 31, 2008.

Smart Papers' loans and all Wachovia claims will be transferred to Plainfield, and the claims will be paid in full under the plan.

Within five days after the company's loans and any Wachovia claims are transferred to Plainfield, Plainfield will make $5 million available to the company in accordance with its final DIP order.

On the effective date of the plan, Plainfield will contribute $5 million of equity to the reorganized company. This contribution will be funded under the existing DIP facility, and the interest rate on this loan will be determined under the final DIP order.

International Paper will exercise its right of offset for $1.81 million against its $3.84 million in claims against Smart Papers and will be granted a second-lien trade claim in all of the assets of the reorganized company to secure payment of the rest of its claim.

The reorganized company will enter into a new one-year labor union contract under substantially the same terms of the terminated contract.

Smart Papers will pay all administrative expense and priority unsecured claims up to $5.3 million.

However, if Plainfield determines these claims will exceed $5.3 million, it can withdraw the plan, or if it determines the claims will be between $4.8 million and $5.3 million, then it will reduce the amount of dividends payable to the liquidating trust on account of its equity interest and the amount payable to the trust to purchase its equity interests by 50% for each dollar the claims exceed $4.8 million.

The reduction cannot exceed $250,000.

If Plainfield determines that the claims will be less than $4.8 million, it will increase the liquidating trust by 50% of the amount the claims exceed $4.8 million, with a maximum increase of $250,000.

Holders of old equity interests will receive no distribution under the plan.

Under the term sheet, the plan must be confirmed by Nov. 20. If the plan is not timely confirmed and consummated, Smart Papers will pay Plainfield a 3% termination fee and reimbursement for reasonable fees and expenses.

Smart Papers, a Hamilton, Ohio-based paper manufacturer, supplier and marketer, filed for bankruptcy on March 21. Its Chapter 11 case number is 06-10269.

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