Oneida: letter of intent for purchase by major shareholders

Oneida Ltd. has reached agreement with two investment firms in a deal that would pay back all of its creditors in full.
The tableware maker signed a letter of intent on 14 July 2006 with shareholders…

Oneida Ltd. has reached agreement with two investment firms in a deal that would pay back all of its creditors in full. The tableware maker signed a letter of intent on 14 July 2006 with shareholders D.E. Shaw Laminar Portfolios LLC and Xerion Capital Partners LLC that would sell the bankrupt company based at Oneida, NY for USD 222.5 million, or enough to pay secured debtholders in full and assume Oneida“s unsecured debt. Xerion, which is Oneida“s largest shareholder, and D.E. Shaw, another significant equity holder, will purchase 100% of Oneida“s equity under the deal. D.E. Shaw would own more than 50% of the equity, while Xerion would retain the balance, according to court papers filed 14 July 2006. Xerion and D.E. Shaw were in the process of doing “follow-up due diligence” in preparation for a 21 July status conference in the US Bankruptcy Court for the Southern District of New York in Manhattan. The parties were working on a definitive agreement that would be linked to a reorganization plan. However, a competing proposal could still beat the D.E. Shaw-Xerion offer. The company would then be subject to a court-sanctioned auction and go to the highest bidder. Oneida said in a release on 14 July 2006, however, that if a definitive agreement could not be reached, it was prepared to go forward with the confirmation of its original reorganization plan. The main difference between the original plan and the new plan is the treatment of equity. Under Oneida“s plan, tranche B lenders would have swapped what court papers set as USD 107 million in debt for all of Oneida“s stock, effectively cancelling the stocks held by the company“s current shareholders. The D.E. Shaw-Xerion deal would pay off the tranche B debt in full and in cash, filings show. Meanwhile, Oneida“s tranche A secured debt, totaling USD 118 million, would also be paid in full. Current Oneida equity holders would also receive “an element of consideration”, according to a company statement released on 14 July 2006. Issues of valuation have emerged in the case because stockholders fought for and won the appointment of an official equity committee after initially being rejected by the US trustee. The equity committee then objected to the plan on fears that it was squeezing out minority shareholders, and challenged several other motions in the case. Oneida had then proposed a settlement with the Pension Benefit Guaranty Corp. which subordinated a pension termination claim of USD 50 million to a position superior only to the company“s equity holders. The settlement gave the PBGC, a federal agency that guarantees company pensions, a USD 3 million secured note under the original plan. Court papers show that under the D.E. Shaw-Xerion deal, the quasi-governmental agency would receive the same treatment.