Nebraska Book extends exchange offer, lowers participation threshold

By Susanna Moon

Chicago, April 15 – Nebraska Book Holdings, Inc. said it amended the offer to exchange up to $125 million of 2% convertible senior PIK notes due 2026 for its outstanding 15% senior secured notes due 2026.

As a result, the minimum tender threshold was lowered to tenders for 90% of notes from 95% of notes, according to a company notice. Only notes that have not been reacquired by the company will be counted in determining whether the minimum tender condition has been met, the release added.

The exchange offer will now be open until midnight ET on April 28, extended from midnight ET on April 14.

As of the original expiration, investors had tendered for exchange $83.1 million principal amount, or 75.5%, of notes.

For each $1.00 principal amount of 15% notes tendered, holders will receive $1.05 principal amount of the new PIK notes plus an additional amount of new notes equal to accrued interest on the existing notes up to but excluding the closing date of the exchange. Settlement is expected for April 14, which would result in $0.08085 per $1.00 of existing notes in accrued interest.

Interest on the new notes will be paid in kind for the first two years and subsequently in cash if the company meets specified requirements.

When the offer was announced March 18, funds managed by MAST Capital Management, LLC, which is the largest holder of the notes, had agreed to tender.

MAST also agreed to lend the company sufficient funds to redeem any notes not tendered.

New term loan

In addition to the participation requirement, the exchange is also subject to completing documentation for a new senior term loan from MAST and for the purchase by the company of third-party debt securities with a face value of $70 million for $31.5 million, as previously announced.

The company said it is proposing the purchase of $70 million of term loans of Sonifi Solutions, Inc. in exchange for a $31.5 million term loan issued by a newly formed subsidiary of the company, created for the purpose of purchasing and holding the Sonifi loans, which will settle by participation rather than assignment as previously announced.

Proceeds of the new senior term loan will be used to acquire the Sonifi participation interest. As a closing condition, Newco will enter into the participation agreement and grant a first-lien security interest in the participation interest to the senior term loan lenders. The lenders under the ABL credit facility will also be granted a second-lien security interest in the participation interest.

Under the terms of the participation agreement, the company will receive full economic participation rights for the purchased loans as well as some voting rights. The senior term loan lenders have also agreed to use commercially reasonable efforts to assign the purchased loans to Newco upon the request of the company's board of directors.

The $70 million 8% term loans underlying the participation right will mature March 31, 2018 with a market price of 45% and a market value of $31.5 million for a current yield of 17.78%, according to a company update on Friday.

The company said it also has entered into restructuring support agreements with major noteholders, including MAST Capital Management, LLC on behalf of funds managed by it and other major noteholders, who collectively hold about 75.5% of the existing notes.

Under the restructuring support agreements, MAST and the supporting noteholders have committed to tendering their notes in the exchange.

The exchange is open to holders who are accredited investors.

“This is another important step in the company’s long-term goal of increasing liquidity and reducing its cost of capital,” said John Maciel, interim chief financial officer of Nebraska Book, in a previous release.

“The new 10-year convertible notes will allow us to free up approximately $16 million in cash for at least the first two years from interest payments that can be put to work in ways that enhance the value we provide to our customers.”

Georgeson (888 206-0860) is information agent.

Nebraska Book is a Lincoln, Neb., provider of services to higher education retailers.

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