SP Newsprint set for Aug. 17 auction

SP Newsprint Holdings LLC is one step closer to selling its assets.

Judge Christopher Sontchi of the U.S. Bankruptcy Court for the District of Delaware in Wilmington on July 27 signed an order approving the bidding procedures of the newsprint producer.

According to court papers filed July 19, an affiliate of secured lender GE Capital Corp. will be stalking-horse bidder for the assets in a deal valued at $145 million. SPN AcquisitionCo LLC would credit-bid the entire amount of GE Capital's outstanding revolving loans and a portion of an outstanding term loan for substantially all of the Greenwich, Conn., newsprint producer's assets.

As of the Nov. 15, 2011, petition date, SP Newsprint owed GE Capital $41 million under a revolving facility and about $213 million under a term loan, court documents show.

The proposed buyer has also agreed to provide enough cash to pay all outstanding obligations under a debtor-in-possession credit agreement with GE Capital, would assume $27.9 million in administrative priority claims and would pay any outstanding prepetition employee wages. The buyer would also fund closing administrative costs, projected to be about $20 million.

Under the bidding procedures, if SP received more than one qualified offer by Aug. 13, it would hold an auction on Aug. 17. Qualified offers must be valued at no less than $145 million and must provide for the assumption of all the liabilities agreed upon in the SPN AcquisitionCo deal. Competing bidders also must provide a 5% deposit, court papers said.

SP did not set bidding increments in court papers.

A sale hearing will take place on Aug. 21.

Sontchi, meanwhile, on July 27 also approved SP Newsprint's July 19 request to increase its borrowing capacity under the DIP to $60 million from $30 million.

GE Capital had previously agreed to augment the cap on the delayed-draw DIP by $5 million on April 27, bringing the total DIP amount to $30 million, court papers said.

Sontchi on Jan. 25 signed a final order granting SP Newsprint permission to tap $25 million in financing from the DIP lender.

The financing will mature in six months and accrues interest at the prime rate, according to a Dec. 15 DIP motion. It is unclear in court papers if the DIP is new money.

GE Capital retains a first-priority lien on SP Newsprint's assets under the terms of the financing.

The debtor and three affiliates filed for Chapter 11 protection on Nov. 15, more than a year after minority shareholder White Birch Paper Co. filed for bankruptcy. The newsprint company attributed its filing to a default on a credit agreement with GE Capital.

SP Newsprint said in court papers it had been attempting to secure financing and restructure its debt since Oct. 12, when GE Capital took action that led to the freezing of the company's bank accounts. The debtor defaulted on its loan obligations to GE Capital in June and had entered into a forbearance agreement that ended on Sept. 12, court papers said.

SP Newsprint Merger LLC, a predecessor of the debtor, originally borrowed $275 million from GE Capital on March 31, 2008. The credit line consists of a $225 million term loan and a $50 million revolver, court papers show.

Established in 1980 as a subsidiary, SP Recycling supplies its affiliates with recycled fiber, a key raw material for newsprint, court papers said. SP Recycling has 23 recycling centers that collect or purchase newspaper, sawmill residual chips, paper and other materials, and repurposes them.

SEP Technologies, another subsidiary, has no operations, court papers show.

In schedules, SP Newsprint reported $305,142 in assets and $252.21 million in liabilities.

Debtor co-counsel Mark Collins and Lee Kaufman of Richards, Layton & Finger PA could not be reached for comment Monday, July 30. Michael Carney, Stephen Gordon, Joel Levitin and Richard Stieglitz of Cahill Gordon & Reindel LLP are also debtor counsel.

Alan Holtz of AP Services LLC is chief restructuring officer. Michael Pokrassa and Mark McHugh of Raymond James & Associates Inc. are SP Newsprint's investment bankers.

Richard A. Levy, Roger G. Schwartz and David Hammerman of Latham & Watkins LLP and Kurt F. Gwynne of Reed Smith LLP represent GE Capital. John Bessonette and Doug Mannal of Kramer Levin Naftalis & Frankel LLP also represent the lender along with Latham in respect to GE Capital's stalking-horse bid.

Kenneth A. Rosen, Bruce D. Buechler, Bruce S. Nathan and David M. Banker of Lowenstein Sandler PC and William P. Bowden, Karen B. Skormorucha and Stacy L. Newman of Ashby & Geddes PA are counsel to the official committee of unsecured creditors.