Verso Paper begins exchange offers for 8¾% notes, 11 3/8% notes

By Angela McDaniels

Tacoma, Wash., July 2 – Verso Paper Corp. subsidiaries Verso Paper Holdings LLC and Verso Paper Inc. began exchange offers for their $396 million of 8¾% second-priority senior secured notes due 2019 and $142.5 million 11 3/8% senior subordinated notes due 2016, according to a company news release.

The issuers are offering new second-priority adjustable senior secured notes and warrants in exchange for the 8¾% notes and new adjustable senior subordinated notes and warrants in exchange for the 11 3/8% notes.

The warrants will be mandatorily convertible into shares of common stock of Verso immediately prior to the completion of Verso’s acquisition of NewPage Holdings Inc., which is expected to close in the second half of 2014.

The closing of the merger is conditioned on the consummation of the exchange offers.

Both offers will end at midnight ET at the end of July 30.

As of July 2, the holders of about $213 million of 8¾% notes have agreed with the issuers and Verso to tender all of their 8¾% notes in the exchange offer.

Consent solicitation

In connection with the exchange offers, the issuers will solicit consents to amend the 8¾% notes, the 11 3/8% notes and the indentures governing both notes.

The proposed amendments, which require the consent of a majority in outstanding principal amount of the 8¾% notes and 11 3/8% notes, respectively, will eliminate or waive substantially all of the restrictive covenants, eliminate some events of default, modify covenants regarding mergers and transfer of assets and modify or eliminate some other provisions.

In addition, the consents for the 8¾% notes will authorize a release of the liens and security interests in the collateral securing the 8¾% notes. In order to be effected, the collateral release must be consented to by the holders of at least two-thirds in outstanding aggregate principal amount of the 8¾% notes.

8¾% exchange offer

In exchange for each $1,000 principal amount of 8¾% notes, holders who exchange will receive an equal amount of new notes. This amount includes a premium of $50 principal amount of new notes in exchange for each $1,000 principal amount of notes tendered by the early tender time, midnight ET at the end of July 16.

The issuers will not pay accrued interest on the 8¾% notes exchanged in the offer. Interest on the new notes will accrue from Aug. 1.

For each $1,000 principal amount of 8¾% notes tendered, holders will receive a number of warrants equal to (a) $1,000 divided by (b) the aggregate principal amount of 8¾% notes as of the date of consummation of the exchange offer multiplied by (c) 15% of the total number of outstanding shares of common stock, determined on a fully diluted basis after giving effect to the merger and the issuance of common stock upon the mandatory conversion of all warrants issued in the exchange offers.

The principal amount of the new notes will be adjusted following the merger based on the level of participation in the exchange offer.

Each $1,000 principal amount of new notes outstanding prior to the merger will be adjusted to $668.75 if 100% of the 8¾% notes are tendered in the exchange offer, to $653.75 if 95% of the 8¾% notes are tendered, to $638.75 if 90% of the 8¾% notes are tendered, to $623.75 if 85% of the 8¾% notes are tendered, to $608.75 if 80% of the 8¾% notes are tendered and to $593.75 if 75% of the 8¾% notes are tendered.

If holders in the aggregate tender a percentage of 8¾% notes that is not specified above, holders will receive the principal amount corresponding to the closest lower percentage. For example, if 87.5% of the 8¾% notes are tendered, holders will receive the principal amount corresponding to 85%.

Before the merger is completed, the new notes will have substantially the same terms as the 8¾% notes in that they will have their original principal amount ($396 million), will bear interest at a rate of 8¾% per year, will mature on Feb. 1, 2019 and will be governed by covenants that are substantially the same as the covenants currently governing the 8¾% notes. If the merger does not occur, the new notes will retain their original principal amount and these same terms.

Once the merger is completed, the principal amount of the new notes will be adjusted as noted above, the maturity date will be extended to Aug. 1, 2020, the interest rate will increase to 10% in cash plus 3% in kind, the optional redemption provisions will be amended and the new notes will be governed by different covenants.

The new notes will be guaranteed by the wholly owned domestic restricted subsidiaries of Verso Paper Holdings that guarantee its credit facilities. After the merger, the new notes will be guaranteed by NewPage but not its subsidiaries.

The consummation of the 8¾% notes exchange offer is conditioned on, among other things, the tender of at least 75% of the outstanding 8¾% notes. The issuers will make alternative arrangements on similar economic terms to the exchange offer for holders who are not eligible holders; the 75% minimum condition will include in it any 8¾% notes held by such holders that tender under such alternative arrangements.

The exchange offer for the 8¾% notes is not conditioned on the consummation of the exchange offer for the 11 3/8% notes.

11 3/8% notes exchange offer

In exchange for each $1,000 principal amount of 11 3/8% notes, holders who exchange will receive an equal amount of new notes. This amount includes a premium of $50 principal amount of new notes in exchange for each $1,000 principal amount of notes tendered by the early tender time, midnight ET at the end of July 16.

The issuers will not pay accrued interest on the 11 3/8% notes exchanged in the offer. Interest on the new notes will accrue from Aug. 1.

For each $1,000 principal amount of 11 3/8% notes tendered, holders will receive a number of warrants equal to (a) $1,000 divided by (b) the aggregate principal amount of 11 3/8% notes as of the date of consummation of the exchange offer multiplied by (c) 4.774% of the total number of outstanding shares of common stock, determined on a fully diluted basis after giving effect to the merger and the issuance of common stock upon the mandatory conversion of all warrants issued in the exchange offers.

The principal amount of the new notes will be adjusted following the merger based on the level of participation in the exchange offer.

Each $1,000 principal amount of new notes outstanding prior to the merger will be adjusted to $681.875 if 100% of the 11 3/8% notes are tendered in the exchange offer, to $666.875 if 95% of the 11 3/8% notes are tendered, to $651.875 if 90% of the 11 3/8% notes are tendered, to $636.875 if 85% of the 11 3/8% notes are tendered, to $621.875 if 80% of the 11 3/8% notes are tendered and to $606.875 if 75% of the 11 3/8% notes are tendered.

If holders in the aggregate tender a percentage of 11 3/8% notes that is not specified above, holders will receive the principal amount corresponding to the closest lower percentage. For example, if 87.5% of the 11 3/8% notes are tendered, holders will receive the principal amount corresponding to 85%.

Prior to the merger, the new notes will have substantially the same terms as the 11 3/8% notes in that they will have their original principal amount ($142.5 million), will bear interest at a rate of 11 3/8% per year, will mature on Aug. 1, 2016 and will be governed by covenants that are substantially the same as the covenants currently governing the 11 3/8% notes. If the merger does not occur, the new notes will retain their original principal amount and these same terms.

Once the merger is completed, the principal amount of the outstanding new notes will be adjusted as noted above, the maturity date will be extended to Aug. 1, 2021, the interest rate will be adjusted to 10% in cash plus 3% in kind and the optional redemption provisions will be amended.

The new notes will be guaranteed by the wholly owned domestic restricted subsidiaries of Verso Paper Holdings that guarantee its credit facilities. After the merger, the new notes will be guaranteed by NewPage but not its subsidiaries.

The consummation of the 11 3/8% notes exchange offer is conditioned on, among other things, the tender of at least 75% of the outstanding 11 3/8% notes. The issuers will make alternative arrangements on similar economic terms to the exchange offer for holders who are not eligible holders; the 75% minimum condition will include in it any 11 3/8% notes held by such holders that tender under such alternative arrangements.

The exchange offer for the 11 3/8% notes is not conditioned on the consummation of the exchange offer for the 8¾% notes.

The information agent is Global Bondholder Services Corp. (212 430-3774 for brokers and banks or 866 470-3700 for all others).

Memphis-based Verso Paper produces coated papers. NewPage is a Miamisburg, Ohio-based producer of printing and specialty papers.

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