AbitibiBowater, Inc. (fka ABWTQ)

[In0nS]

News for 'ABWTQ' - (=DJ Noteholders Oppose $500 Million AbitibiBowater Rights Offering)


By Rachel Feintzeig
Of DOW JONES DAILY BANKRUPTCY REVIEW

Two noteholders are protesting AbitibiBowater Inc.'s (ABWTQ) bid to hold a rights offering, saying the move is unnecessary and could actually be detrimental to the newsprint manufacturer and its creditors.
Aurelius Capital Management and Contrarian Capital Management LLC--as well as Wilmington Trust Co., which serves as the indenture trustee of the notes--are objecting to the company's request to auction off the rights to fund its exit from bankruptcy. In papers filed Monday with the U.S. Bankruptcy Court in Wilmington, Del., Aurelius Capital and Contrarian Capital say that it's questionable whether AbitibiBowater even needs the $500 million in potential funding. The pair argues that the company should be able to rely on its available cash and other forms of financing to make its way out of bankruptcy.
"The noteholders believe that the motion should be denied in its entirety as the issue of the backstop commitment is at best premature and at worst an utter waste of estate resources," they said.
Not only might the rights offering not prove useful to the company, the noteholders and Wilmington Trust said, it could also end up jeopardizing the company's unsecured creditors' potential for recovery, since the rights offering incorporates a release of an avoidance claim that could have potentially brought in $200 million for unsecured creditors.
"Releasing that claim--in exchange for no apparent consideration--would make no sense," Wilmington Trust said.
The avoidance claim stems from a $387.3 million guarantee by Bowater Inc., a predecessor of AbitibiBowater, of certain convertible notes issued by AbitibiBowater. But instead of pursuing the claim against Fairfax Financial Holdings Ltd. (FRFHF, FFH.T) and seeking a possible payout for creditors, AbitibiBowater is releasing it in exchange for Fairfax's participation in the rights offering. Fairfax has committed to backstop $110 million of the rights offering.
Despite AbitibiBowater's assertion that Fairfax will play a crucial part in the rights offering, the noteholders insist that AbitibiBowater could easily find someone else to take Fairfax's place.
"Based on the attractive pricing of the rights offering numerous parties, including the other proposed backstop investors, would be willing to take up Fairfax's share of the backstop commitment without requiring the debtors to give away potentially valuable estate assets in the form of the Fairfax release," Aurelius Capital and Contrarian Capital said.
They claim that Fairfax is already getting ample value in exchange for its role in the rights offering, including fees and other benefits.
In its original request to move forward with the rights offering, AbitibiBowater defended the release as "reasonable and appropriate under the circumstances." It said it wouldn't have been able to persuade Fairfax to backstop the rights offering otherwise.
A judge is set to consider AbitibiBowater's request to hold an auction later this month at a hearing Friday.
Fairfax and Avenue Capital Management, along with other noteholders, have already agreed to serve as the stalking-horse bidders for the proposed auction. In exchange, they'll be compensated with either $15 million or 6% of the total amount of the rights offering, whichever is larger.
Unsecured creditors will have the right to purchase up to $500 million in unsecured convertible notes through the rights offering, while Fairfax, Avenue and other noteholders have committed to buy any unsold shares.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)

-By Rachel Feintzeig, Dow Jones Daily Bankruptcy Review; 267-639-6000; [e-mail]

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(END) Dow Jones Newswires
June 08, 2010 14:37 ET (18:37 GMT)
Copyright (c) 2010 Dow Jones & Company, Inc.- - 02 37 PM EDT 06-08-10

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