Workflow Management files plan based on sale to second-lien lenders

By Caroline Salls

Pittsburgh, Dec. 29 - Workflow Management Inc. filed an amended plan of reorganization and related disclosure statement Wednesday with the U.S. Bankruptcy Court for the Eastern District of Virginia.

A week earlier, the court ordered the company to file the amended plan and statement by Dec. 29.

Under the amended plan, the company's balance sheets will be deleveraged by more than $170 million.

Amended plan terms

Specifically, under the amended plan:

• The company will sell essentially all of its operating assets to a buyer formed on the behalf of Workflow's second-lien lenders;

• Before the sale closes and the plan takes effect, funds managed by Perseus will hold 41.5% of the buyer's common equity as a result of their contribution of $12.5 million to the buyer, and the second-lien lenders will hold a total of $30 million in preferred equity.

In addition, the second-lien lenders who execute the buyer's limited liability company agreement will receive 58.5% of the purchaser's common equity;

• Debt instruments issued by the buyer will be distributed to the company's first-lien and second-lien lenders;

• The secured claims of the first-lien lenders will be paid through the issuance by the purchaser of $141.5 million in four-year new company first-lien notes bearing interest at Libor plus 700 basis points;

• The secured claims of the second-lien lenders will be paid through the issuance by the buyer of $140 million in 41/2-year new company second-lien notes, which will bear interest at Libor plus 1,400 bps, and new company preferred equity interests.

The new preferred equity interest will be issued with an initial liquidation preference of $30 million, have no stated maturity date, and be entitled to receive a 15% preferred distribution;

• Second-lien lender deficiency claims will be treated as general unsecured claims;

• Administrative expense claims, priority non-tax claims and priority tax claims will be paid in full from plan funds or be assumed and paid in full by the purchaser;

• Holders of general unsecured claims against non-holding company debtors will receive partial payment in cash from the purchaser from funds that would otherwise be owed to the second-lien lenders, for an estimated recovery of 1% to 4%;

• Holders of general unsecured claims against holding company debtors will receive no distribution; and

• Existing equity interests will be cancelled.

Original treatment

As previously reported, under the original, pre-packaged plan:

• Holders of priority claims would be paid in full;

• Holders of first-lien lender claims and second-lien lender claims would retain their liens and receive deferred cash payments totaling at least the amount of the claim;

• Holders of general unsecured claims would either be paid in the ordinary course of business or recover half of their claim in cash on the distribution date and half 60 days after the distribution date; and

• Equity interests would be reinstated.

A hearing on the amended disclosure statement is scheduled for Jan. 13.

Workflow Management, a Dayton, Ohio-based provider of end-to-end business management outsourcing services to commercial customers, filed for bankruptcy on Sept. 29. The Chapter 11 case number is 10-74617.

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