Smart Papers files Chapter 11 bankruptcy; obtains commitment for $46 million DIP

By Caroline Salls

Pittsburgh, March 22 - Smart Papers, LLC filed for Chapter 11 bankruptcy Tuesday in the U.S. Bankruptcy Court for the District of Delaware to allow it to address its financial challenges and allow it to implement its transformation strategy geared toward increasing profitability, according to a company news release.

The filing also includes Premium Papers Holdco, LLC and PF Papers, LLC.

Smart Papers said it expects to continue operations at its Hamilton, Ohio, papermaking center, and its Buena Park, Calif., distribution facility, as well as through its affiliate's West Chicago, Ill., distribution center.

The company has obtained a commitment for $46 million in debtor-in-possession financing from Wachovia Bank, NA.

According to court documents, the facility includes a revolving loan with a limit of $33 million through April 27; $27 million from April 28 to June 8 and $25 million after that, with a $46 million maximum credit.

In addition, there is a supplemental loan limit of $1 million through April 30 and $1.25 million after that.

Maturity is the earliest of March 22, 2007 or completion of a plan of reorganization.

Maturity on the supplemental loan is the earlier of an event of default or March 22, 2007. There will be a 50 basis points early termination fee.

Smart Papers will pay a $460,000 DIP facility fee.

Smart Papers said it expects to continue to manufacture and market its portfolio of 12 cast-coated, matte-coated and uncoated writing text and cover brands; maintain and/or expand its relationships with customers, fulfill orders and provide sales and customer support services; provide employee wages, healthcare coverage and similar benefits without interruption; and pay suppliers for goods and services received during the Chapter 11 process.

According to the release, during the last 10 months, Smart Papers and its affiliates implemented an aggressive transformation process in its effort to increase profitability.

However, the company said it was hampered by fast rising and record-setting costs for energy, wood fiber, transportation and logistics, as well as continued pressure on gross margins for commercial printing papers.

As a result, the company could not realize the full benefits of its transformation strategy as quickly as it intended.

The company had $41.08 million in pre-bankruptcy bank debt as of March 20, according to court documents, including $28.58 million in revolvers and $12.5 million in term loan debt.

The company's largest unsecured creditors include:

• International Paper, Memphis, with a $2.68 million trade claim;

• Danisco Sweeteners (Cultor), Thomson, Ill., with a $2.55 million trade claim;

• Boise Cascade, Boise, Idaho, with a $2.25 million trade claim;

• Northern States Power Co., Eau Claire, Wis., with a $1.6 million utility claim;

• Lanxess Corp., Pittsburgh, with a $1.42 million trade claim;

• Centerpoint, Madison, Wis., with a $1.15 million utility claim;

• West Fraser Mills Ltd., Vancouver, BC, with a $1.11 million trade claim;

• Central National Gottesman, Purchase, N.Y., with a $1.03 million trade claim; and

• Minerals Technology, Inc., Pointe-Claire, Quebec, with a $1.02 million trade claim.

On March 17, Smart Papers announced that affiliate PF Papers, LLC would discontinue operations at its Park Falls, Wis., pulp and papermaking facilities as a result of rising input costs and pricing pressures on many of its brands manufactured in Wisconsin.

The Chapter 11 case number is 06-10269.

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