AbitibiBowater Defends Investment Deal With Fairfax, Others

10th Jun 2010 17:51

By Peg Brickley Of DOW JONES DAILY BANKRUPTCY REVIEW AbitibiBowater Inc. (ABWTQ) defended a proposed $500 million investment arrangement with leading bondholders against creditor allegations the deal is costly and unnecessary to finance the newsprint maker's exit from bankruptcy protection. Citing the "volatile capital markets," AbitibiBowater said failure to lock in an investment commitment with bondholders threatens to derail a restructuring that is being supervised by courts in the U.S. and Canada. Montreal-based AbitibiBowater sought court protection from creditors in April 2009, its fortunes slammed by a slumping global economy. In a court filing Wednesday, the company said its restructuring proposal enjoys wide support among creditors in part because they're comfortable the cash will be there to finance it. AbitibiBowater says it's willing to expose the investment arrangement to competing offers at a June 21 auction but needs to have the certainty of the deal, a so-called "backstop commitment," to safeguard its future. The backstop commitment calls for leading bondholders to provide up to $500 million in financing for AbitibiBowater's Chapter 11 exit and means they will come up with the cash if no one else does. Other creditors say there will be no shortage of takers for the convertible-debt issue, and it isn't even clear AbitibiBowater needs that much money to get out of bankruptcy protection. Protesters include bondholders owed $600 million, as well as Aurelius Capital Management and Contrarian Capital Management LLC. Objections focus on the special treatment one of the group of backstop bondholders will get if the arrangement is approved when it comes before a bankruptcy judge Friday. Fairfax Financial Holdings Ltd. (FRFHF, FFH.T) has committed to providing up to $110 million of the exit financing. However, creditors say Fairfax is getting a release from liability that will cost them $200 million under the investment arrangement. The release bails Fairfax out of potential legal trouble over convertible debt issued at a time when the company unit involved was in no financial shape to pay, according to unhappy creditors. AbitibiBowater on Wednesday defended the legal immunity for Fairfax as an appropriate settlement of a potential lawsuit that has an uncertain outcome. Represented by Wilmington Trust, objecting bondholders say if the judge approves the investment pact Friday, Fairfax will get its release no matter what happens at the auction. That deprives AbitibiBowater of the possibility another investor would be willing to fund the $500 million exit financing without a release, Wilmington Trust said. Pricing on the investment is attractive, creditors say. The $500 million debt issue carries interest at 10%, and investors will collect a 4% fee up front. They're in line to recoup their expenses and split a fee of $15 million to $30 million if the investment arrangement is ultimately put in place. If they're beaten at the auction, the backstop investors will get a breakup fee of $7.5 million to $25 million, the Wilmington Trust bondholders say. In addition to Fairfax, bondholders Avenue Capital Group, Barclays PLC (BCS), and Paulson & Co. have major pieces of the backstop deal, court papers say. J.P. Morgan Chase & Co. (JPM), Steelhead Partners, and Whitebox Advisors each have 6% or less of the backstop commitment. (Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.) -By Peg Brickley, Dow Jones Daily Bankruptcy Review; 302-521-2266; [email protected] (END) Dow Jones Newswires June 10, 2010 12:51 ET (16:51 GMT)