School Specialty, Inc (fka SCHSQ)

[east600]

SCHSQ news from eTrade newsfeed: Now that School Specialty Inc. (SCHSQ) and its creditors have resolved a fight over the path of
the education supply company's Chapter 11 case, the creditors are turning their attention to a
new battle: whether lender Bayside Capital Inc. is owed a $25 million penalty payment.
School Specialty just received preliminary approval of a loan from its bondholders that will pay
off the money Bayside lent the company before and after its bankruptcy, which everyone
agrees is at least $91 million. At issue is whether the bondholders have to pay Bayside another
$25 million; in a recent court filing, unsecured creditors say no.
Bayside, the lending unit of private equity firm H.I.G. Capital, lent School Specialty $70 million last
May to help it pay off other debt, and the loan was slated to come due in October 2014.
However, School Specialty ran into trouble when its cash levels dipped below the $20 million
minimum that Bayside required as part of the loan terms. Bayside declared the company in
default and demanded that the company pay the full amount of the loan--including a $25 million
penalty fee, or "make-whole payment."
School Specialty struck a temporary deal to avoid full payment of the loan, agreeing to hire an
independent restructuring manager in exchange for Bayside dropping its minimum cash
requirements down to $3 million.
For a longer-term solution, School Specialty decided to seek Chapter 11 protection, where
Bayside agreed to put up $50 million in new money as long as School Specialty planned a quick
sale. Bayside also said it would bid for the company, offering to forgive $95 million in existing
debt, including the $25 million make-whole payment.
The quick sale plans irked School Specialty's unsecured creditors, including its bondholders,
who expressed concern that the deal with Bayside would discourage rival buyers from
submitting the cash bids the unsecured creditors depend upon for payment.
The bondholders offered a rival bankruptcy loan of up to $155 million, which would allow School
Specialty to not only pay off Bayside but which also gives the company more time in Chapter 11.
The bondholders are encouraging the company to pursue both a sale and a standalone
restructuring, so it can determine which option is the best one for itself and its creditors.
A bankruptcy judge this week granted preliminary approval to the bondholder loan, authorizing
School Specialty to draw $129 million. The company will use the funds to fund its operations and
pay off the $91 million in undisputed Bayside claims, while another $25 million will sit in a bank
account until the dispute over the make-whole payment is resolved.
The U.S. Bankruptcy Court in Wilmington, Del., said it would consider the disputed payment at a
March 12 hearing.
School Specialty, of Greenville, Wis., sought Chapter 11 protection on Jan. 28. The company
sells various school supplies, curriculum, classroom furniture and other education items.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those
under bankruptcy protection. Go to http://dbr.dowjones.com)
Write to Jacqueline Palank at [e-mail]
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(END) Dow Jones Newswires
February 27, 2013 12:11 ET (17:11 GMT)
Copyright (c) 2013 Dow Jones & Company, Inc.
022713 17:11 -- GMT
Story ID: FEB272013_DJB_02o4
Keywords: BANKRUPTCY-RELATED FILINGS, CHAPTER 11 BANKRUPTCY FILINGS & CASES,
CORPORATE ACTIONS, ALL COMPANY NEWS, CORPORATE RESTRUCTURINGS, INDUSTRIAL
Symbols: BAY.XX, CFDAY, HGC.XX, SCHSQ