Wellman files amended reorganization plan, aims to exit bankruptcy this year; second-lien lenders to get equity

By Caroline Salls

Pittsburgh, Sept. 16 - Wellman, Inc. has filed an amended plan of reorganization that is expected to allow the company to emerge from bankruptcy by the end of the year with a stronger balance sheet, ample liquidity and an efficient operation focused on the North American resins business, according to a company news release. Second-lien debtholders will receive all the company's equity.

The reorganized company will centralize operations at its Pearl River facility in Hancock County, Mississippi, according to the release.

As part of its plan, Wellman said it will exit the polyester staple fiber and engineering resins businesses and consolidate its resin production at the Pearl River facility, which will result in lower debt levels through the monetization of working capital of the polyester staple fiber and engineering resins businesses, improved capacity utilization of the Pearl River facility and reduced corporate costs.

The company said the combination of lower costs, improved capacity utilization and a strong capital structure will allow it to profitably grow its PET business.

Wellman said it expects to have a financial position, operating results and cash flows comparable to investment grade companies.

"While it is always difficult to restructure operations, we believe these actions will maximize value for our stakeholders and position Wellman for future growth," chief executive officer Mark Ruday said in the release.

Under the plan, a group of the company's second-lien lenders have committed to provide additional capital to the reorganized Wellman.

Specifically, the lenders will contribute $70 million in new capital to the reorganized Wellman.

Plan creditor treatment

Treatment of creditors will include:

• Second-lien debtholders will convert 100% of their debt into equity of reorganized Wellman and receive 90% of the proceeds from a distribution trust to be established under the plan;

• If the company's first-lien lenders vote as a class to accept the plan, they will receive a $75 million promissory note secured by the property, plant and equipment at the Pearl River facility and the proceeds from the sale of the pledged collateral, including the intellectual property and intangible assets on which the second-lien lenders hold security interests, at the facilities to be closed in connection with the operational restructuring plan.

If the first-lien lenders vote to reject the plan, they will receive a $70 million promissory note secured by the property, plant and equipment at the Pearl River facility and the pledged collateral at the facilities to be closed in connection with the operational restructuring plan;

• General unsecured creditors will receive 10% of the proceeds from the plan distribution trust; and

• The company's capital stock will be cancelled and holders will not receive any distribution.

As previously reported, Wellman filed its original plan in June, before a trial that set the value of the first-lien lenders' collateral.

The initial plan was also based on an agreement under which the company's second-lien debtholders would convert their debt into equity of Wellman and receive 90% of the beneficial interest in a plan distribution trust.

That plan also included an opportunity for second-lien debtholders to participate in a rights offering of $80 million of convertible notes to be issued by Wellman Holdings, Inc.

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

The treatment for general unsecured creditors and interest holders did not change under the amended plan.

Wellman, a Fort Mill, S.C., polyester products manufacturer, filed for bankruptcy on Feb. 22, 2008 in the U.S. Bankruptcy Court for the Southern District of New York. Its Chapter 11 case number is 08-10595.

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