Wellman files plan of reorganization; second-lien lenders eligible for convertible rights offering

By Caroline Salls

Pittsburgh, June 26 - Wellman, Inc. filed a plan of reorganization and related disclosure statement Wednesday with the U.S. Bankruptcy Court for the Southern District of New York.

According to the disclosure statement, the plan is based on an agreement under which the company's second-lien debtholders will convert their debt into equity of Wellman Holdings, Inc.

The second-lien debtholders also will receive 90% of the beneficial interest in a plan distribution trust and an opportunity to participate in a rights offering of $80 million of convertible notes to be issued by Wellman Holdings, Inc.

The rights offering will be backstopped by some of the second-lien debtholders in exchange for a $5 million fee payable in additional convertible notes.

Under the rights offering, each holder of a second-lien term loan claim will receive the right to subscribe for up to its share of $80 million principal amount of 8% PIK convertible notes due 2018.

The notes will be convertible into 63.75% of the common stock of Wellman Holdings, Inc., and the PIK interest will also be converted into new common stock.

The convertible notes cannot be redeemed by the company until after the second anniversary of their issuance.

Also under the plan, Wellman will continue to use its first-lien debtholders' collateral, and the first-lien debtholders will receive a secured note equal to the value of the collateral.

However, if the first-lien debtholders win a lawsuit related to the value of the collateral, Wellman said the terms of the secured note could change.

The company said it also intends to obtain $200 million in exit financing.

Treatment of creditors will include:

• Holders of secured claims will receive either payment in full in cash or the return of the collateral securing the claim;

• Intercompany interests will be reinstated;

• Holders of first-lien debt claims will receive a share of a note to be issued after the plan effective date;

• Holders of second-lien debt claims will receive a share of new common stock in the reorganized company, 90% of the beneficial interests of a distribution trust and the opportunity to participate in the rights offering;

• Holders of unsecured claims will receive a share of 10% of the beneficial interests in the distribution trust; and

• Holders of old preferred interests and old common interests will receive no distribution under the plan.

As previously reported, under an amendment to its debtor-in-possession facility, the company is required to obtain an indicative exit financing commitment by July 14 and a fully underwritten commitment by July 30.

Bankruptcy court approval of the disclosure statement must be obtained by Aug. 4, and the plan must be confirmed by Sept. 15.

The exit would occur by Sept. 25.

Wellman, a Fort Mill, S.C., polyester products manufacturer, filed for bankruptcy on Feb. 22. Its Chapter 11 case number is 08-10595.

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