Solo Cup amends first-, second-lien loans to allow extra $50 million of borrowing

By Caroline Salls

Pittsburgh, Dec. 29 - Solo Cup Co. and Solo Cup Investment Corp. entered into amendments to their first- and second-lien credit agreements, according to an 8-K filing with the Securities and Exchange Commission.

According to the filing, the first-lien amendment permits an additional $50 million of borrowing under Solo Cup's second-lien credit agreement, and Solo Cup must use the proceeds of the $50 million to pay down the revolving credit loans under the first-lien facility; provided, however, that the $50 million payment will not be a permanent reduction to the company's first-lien revolver.

The applicable interest rate for the first-lien borrowings was also modified to provide for different pricing levels depending upon Solo Cup's consolidated leverage ratio and the type of loan.

In addition, the first-lien amendment revised the ratios of the financial covenants that Solo Cup is required to maintain for 2006, 2007, 2008 and 2009 by allowing lower ratios in some quarters of consolidated EBITDA to consolidated cash interest expense and by allowing higher ratios in some quarters of average total debt to consolidated EBITDA.

Until Dec. 31, 2007, Solo Cup, Solo Cup Investment and their subsidiaries may dispose of business lines or segments, provided that the disposed assets constitute no more than 20% of consolidated total assets during any four fiscal quarters.

After Dec. 31, 2007, the disposed assets cannot exceed more than 3% of consolidated total assets during any four fiscal quarters.

The proceeds of dispositions of business lines or segments and the disposition of equipment, real property and intellectual property in excess of $10 million in any fiscal year must be used to repay amounts outstanding under the first-lien facility, and the reinvestment of those proceeds in Solo Cup or its subsidiaries is no longer permitted.

The definition of sale and leaseback transactions was also expanded and provides that Solo Cup, Solo Cup Investment and their subsidiaries can enter into these transactions in an amount up to $175 million, if the transactions are completed by Sept. 30, 2007 and the proceeds are used to repay the loans under the second-lien facility.

If a sale and leaseback transaction is completed after Sept. 30, 2007, Solo Cup can use the proceeds to prepay loans under the second-lien facility only if its consolidated leverage ratio is less than 5.00 to 1.00 on the date of the prepayment and no default has occurred.

The first-lien amendment also added a new consolidated senior leverage ratio covenant that provides that until the amount of debt is reduced to $250 million, the consolidated senior leverage ratio can not be greater than the designated ratios for each quarter.

Second-lien amendment

The second-lien amendment also provides for an additional $50 million in borrowings under the second-lien facility and that the borrowings must be applied to reduce the first-lien revolver borrowings.

The interest rate for borrowings under the second-lien facility was increased to Eurodollar plus 625 basis points from Eurodollar plus 600 bps and Base rate plus 525 bps from Base rate plus 500 bps.

Solo Cup is a Highland Park, Ill.-based manufacturer of disposable foodservice products.

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