Battery Maker Spectrum Brands Files Bankruptcy To Significantly Reduce Outstanding Debt
Spectrum Brands announced that it has reached agreements with noteholders representing, in the aggregate, approximately 70% of the face value of its outstanding bonds, to pursue a refinancing that, if implemented as proposed, will significantly reduce the company’s outstanding debt and put the company in a stronger financial position for the future.
A refinancing on the agreed terms would enable Spectrum Brands to reduce the amount of debt on its balance sheet by approximately $840 million (or approximately one-third), eliminate approximately $95 million in annual cash interest payments for at least each of the next two years, and free up additional cash that can be reinvested in its business to support meaningful revenue and profit growth. The company currently has outstanding indebtedness of approximately $2.6 billion.
To implement the refinancing in the most efficient manner and to take advantage of certain tax benefits, Spectrum Brands and its U.S. subsidiaries filed voluntary petitions for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the Western District of Texas, San Antonio Division. The company’s non-U.S. operations, which are legally separate, are not included in the Chapter 11 proceedings.
Spectrum Brands’s filing included a pre-negotiated plan of reorganization, along with a proposed disclosure statement. The refinancing is provided for in the plan through the cancellation of existing bond obligations in a principal amount of $1.05 billion and the issuance to the noteholders of new bonds in an aggregate principal amount equal to 20% of the total unpaid principal and interest on existing bonds together with shares of new common stock to be created under the plan. Existing common stock will be extinguished under the plan, and no distributions will be made to holders of the current equity. The plan does not propose to impact any existing creditors other than the noteholders and equity holders. The claims of existing secured and other general unsecured creditors would be reinstated or unimpaired, and thus would receive payment of the claims on existing terms either in the ordinary course or upon consummation of the plan. This means, for example, that under the plan, if approved as proposed, the company would provide pay and benefits to its employees as usual, honor all obligations to its customers, and pay suppliers in full for their claims upon consummation of the plan. The company intends to move forward as quickly as possible to obtain approval of the disclosure statement, to solicit votes on the plan from the noteholders, and to present the plan for approval by the Bankruptcy Court.
On February 2, 2009, Spectrum Brands failed to make a $25.8 million interest payment on its 7 3/8% Senior Subordinated Notes due 2015, triggering a default with respect to the notes.
In 2005, battery maker Rayovac Corp. purchased United Industries, an insect control and garden product firm that did business as Spectrum Brands, in a $1.2 billion stock and cash deal. The merged company later changed its name to Spectrum Brands.
