Wornick defaults on senior secured, PIK notes, needs to restate financials

By Caroline Salls

Pittsburgh, May 7 - The Wornick Co. received a notice of default on its 10 7/8% senior secured notes due 2011 and 13 7/8% senior pay-in-kind notes due 2011, according to an 8-K filed with the Securities and Exchange Commission.

The company has until May 20 to cure the defaults, which were prompted by its failure to file its 10-K annual report with the indenture trustee and for failure to provide the trustee with an opinion stating that all action has been taken with respect to the recording, registering, filing, re-recording, re-registering and refilling of all supplemental indentures, financing statements and continuation statements to maintain the liens under Wornick's collateral agreements.

Wornick said it delivered the required counsel opinion to the trustee on May 4.

In addition, on May 7 Wornick notified the trustee that subsidiary TWC Holding LLC's failure to make excess cash flow offers and Wornick's failure to deliver an annual compliance certificate within 120 days after the end of the 2006 fiscal year also constituted an event of default on the notes.

On May 4, Wornick's board of directors and management concluded that its financial statements for the years ended Dec. 31, 2005 and Dec. 31, 2004, as well as interim quarterly reports for the quarters ended Sept. 30, 2006, July 1, 2006, April 1, 2006, Oct. 1, 2005, July 2, 2005 and April 2, 2005 should no longer be relied upon because of the improper classification of some debt.

Wornick said those financial statements need to be restated to reclassify at least $125 million of long-term debt for fiscal 2005 and 2006 and $5.94 million in long-term debt for fiscal 2004.

The company said it found that excess cash flow existed for the fiscal years ended Dec. 31, 2005 and Dec. 31, 2004, and, under the terms of the senior notes indenture, it is required to make an offer each year to senior secured noteholders to buy back the notes to the extent of 50% of any excess cash flow for the preceding fiscal year.

Wornick said the excess cash flow for the 2005 fiscal year was $14.61 million, which would have required it to make a $7.3 million excess cash flow offer; and the excess cash flow for the 2004 fiscal year was $11.88 million, which would have required a $5.94 million excess cash flow offer.

The company said excess cash flow also existed for the fiscal year ended Dec. 31, 2005 in connection with the PIK notes, with similar implications.

Because of its current financial situation, Wornick said it doesn't expect to make any excess cash flow offers to cure any related events of default.

Wornick has retained financial adviser Kroll Zolfo Cooper LLC to help the company evaluate strategic alternatives for its business and capital structure.

Loan forbearance

In addition, Wornick and its subsidiaries entered into a forbearance agreement with lender DDJ Total Return Loan Fund, LP.

DDJ has agreed not to exercise its rights to accelerate the Wornick loan for specified defaults during the forbearance period.

The forbearance period expires on the earliest of July 2; two days before termination of a 45-day standstill period on its 10 7/8% senior secured notes; upon the occurrence of an event of default that is not a specified default; and the filing of a proceeding under any debtor relief laws.

The specified defaults were prompted by the company's failure to maintain government contracts for meals ready to eat (MREs).

As a result of the forbearance agreement, Wornick said it expects to be able to borrow under the DDJ loan to meet its working capital and other requirements throughout the forbearance period.

As of May 4, there was $4.1 million outstanding under the DDJ revolving credit, as well as $8.28 million in additional borrowing availability.

The company is a Cincinnati-based food processing and packaging company.

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