Vertis Holdings wins final OK on DIP loan, approval of bid procedures

By Jim Witters

Wilmington, Del., Nov. 1 - Vertis Holdings, Inc. received final approval for its $150 million of debtor-in-possession financing and for its bid procedures during a Nov. 1 hearing in the U.S. Bankruptcy Court for the District of Delaware.

A separate adequate protection agreement for the prepetition term lenders remains under negotiation and was scheduled for consideration at a Nov. 20 hearing. The prepetition term loans were for $425 million.

The official committee of unsecured creditors had objected to the DIP financing, saying the credit facility "is sufficient only to fund an expedited sale process for the benefit of the lenders."

Jay R. Indyke, attorney for the official committee of unsecured creditors, told the court during the hearing that the creditors, the lenders and the debtors "may have structured the parameters of a deal," but need until Nov. 20 to flesh it out.

He said the committee is holding its objections to the DIP in abeyance while talks continue.

DIP agreement

As previously reported, the DIP loan includes a $20 million letter-of-credit subfacility and a $25 million swing line subfacility.

The facility will mature on the earliest of Dec. 31, subject to up to three 30-day extensions, the effective date of a confirmed Chapter 11 plan, closing of a sale of substantially all company assets and payment in full of the loan obligations.

Interest on Index rate loans will be the Index rate plus 375 basis points and interest on Libor loans will be Libor plus 475 bps.

The DIP lenders are GE Capital Corp, Bank of America, NA and Wells Fargo Capital Finance, LLC.

Sale procedures

Vertis has a $258.5 million stalking-horse bid from Quad/Graphics, Inc. for substantially all of its assets.

As part of the sale through the Chapter 11 case, Vertis and its advisers will evaluate any competing bids that may be submitted in order to ensure it receives the highest and best offer for its assets.

Under the bidding procedures, Quad/Graphics will receive an $8 million breakup fee and reimbursement of up to $2.5 million of its sale-related expenses if it is not the high bidder at auction.

The deadline for competing bids is Nov. 23.

Competing bids must exceed the stalking horse bid by $15.5 million, which includes the breakup fee, expense reimbursement and a $5 million overbid amount.

Subsequent bids at auction must be made in minimum increments of $5 million.

An auction, if needed, is scheduled for Nov. 30.

The sale hearing is scheduled for 9 a.m. ET on Dec. 6.

Judge's rulings

During the hearing, judge Christopher S. Sontchi considered some of the objections raised by the creditors committee to language in the bid procedures and made rulings from the bench that the debtors will incorporate into the final order.

Much of the discussion centered on a provision in the bid procedures that required a single bid for all of the assets or a grouping of bids for less-than-all of the assets that resulted in all the assets being sold.

Brian I. Swett, representing GE Capital, said his client does not want the debtors to be left with assets to sell piecemeal after the auction and sale hearing.

"That's not the structure we are financing. We do not want to incur further expenses to sell the remaining assets," he said.

Sontchi said he would not "shoehorn" the debtors into selling everything to a single bidder or force them to aggregate bids at the auction to ensure all the assets are sold at once.

"That might not be what's best for the estate," he said.

Under the terms presented by the debtors, Quad and GE in the proposed procedures, the proceeds from the sale may not be the highest value attainable, Sontchi said.

"The debtors' assets might be worth more if they are sold individually," he said.

Sontchi said the final order will allow for the debtors to accept bids for "any assets," and the debtors can consult with their financial advisers during the auction to determine which bids are best for the estates.

Another provision of the bid procedures allows Quad to walk away from its asset purchase agreement if the auction is postponed for longer than two days without Quad approval.

The creditors committee objected to the restriction.

But Sontchi let it stand, with the caveat that if Quad declares a default and walks away at that time, it is not entitled to the breakup fee or the expense reimbursement.

Vertis, a Baltimore-based marketing communications company, filed for bankruptcy on Oct. 10. Its Chapter 11 case number is 12-12821.

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