Walter Industries 3.75% convertible holder files suit protesting spinoff conversion ratio adjustment

By Angela McDaniels

Seattle, Oct. 31 - Walter Industries Inc. said CC Arbitrage Ltd. has filed a civil action against the company alleging that the supplemental indenture for the company's 3.75% convertible senior subordinated notes entered into on Aug. 10 was improperly adopted.

Arbitrage alleges that it holds about $22.5 million of the 3.75% convertibles. The suit was filed in the Federal District Court for the Southern District of New York.

The supplemental indenture was entered into in order to cure a provision in the indenture relating to the adjustment of the conversion ratio in the case of a spinoff transaction, according to a Walter news release.

More specifically, the indenture remedied an omission in the definition of "Last Reported Sale Price" by adding text to define "Last Reported Sale Price" in the context of the determining spinoff market price and an errant formula in a proviso in the antidilution provision, thereby making the proviso consistent with the remainder of the section, according to an 8-K report filed with the Securities and Exchange Commission on Aug. 16.

Two other noteholders, CNH CA Master Account LP and CSS LLC - which hold $66.575 million and $10.0 million of the notes respectively - have written to the Bank of New York Trust Co. NA, the indenture trustee, requesting that the trustee begin legal action against the company on similar grounds.

Walter said its management believes that the claims by Arbitrage, CNH and CSS are entirely without merit and that the Arbitrage civil action and the letter from CNH and CSS represent attempts by a few noteholders to "disrupt for their own advantage the planned spinoff distribution by the company of its remaining shares in Mueller Water Products Inc. and to profit improperly at the expense of the company's shareholders."

The company said it will vigorously defend the Arbitrage action and any other similar action that may be filed.

Walter Industries is a Tampa, Fla.-based diversified company that operates in homebuilding, water transmission products and is a producer of metallurgical coal.

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