Comprehensive Capital Structure Plan to De-Lever Balance Sheet,
Returning Focus to Long Term Growth
A.M. Castle & Co. (NYSE:CAS) (the “Company” or “Castle”), a global
distributor of specialty metal and plastic products, value-added
services and supply chain solutions, announced today that, as
part of an overall plan to refinance its public debt, it has commenced a
private exchange offer and consent solicitation to certain eligible
holders (the “Exchange Offer”) to exchange new 12.75% Senior Secured
Notes due 2018 (the “New Notes”) for its outstanding 12.75% Senior
Secured Notes due 2016 (the “Existing Notes”).
As a part of the refinancing plan, the Company announced that it has
entered in separate Transaction Support Agreements (the “Support
Agreements”) with holders (the “Supporting Holders”) of more than 57% of
the aggregate principal amount of the Existing Notes and 78% of the
aggregate principal amount of its 7.00% Convertible Senior Notes due
2017 (the “Existing Convertible Notes”) to refinance its public debt.
Under the Support Agreements, in addition to providing the terms and
conditions of the Exchange Offer and confirming the Supporting Holders’
agreement to tender all of their Existing Notes in the Exchange Offer,
the Company has also agreed to effect an exchange offer of new 5.25%
Senior Secured Convertible Notes due 2019 (the “New Convertible Notes”)
for Existing Convertible Notes by June 30, 2016. The Company will not
receive any cash proceeds in connection with the refinancing plan.
President and CEO Steve Scheinkman commented, “Upon the acceptance of
the Exchange Offer by our noteholders, and the subsequent exchange of
the Convertible Notes under the terms of the Support Agreements, we will
have successfully extended the maturity of a substantial portion of our
public debt for up to two years and will have de-levered our balance
sheet by up to $17.25 million. In addition, under the terms of the New
Convertible Notes agreed to in the Support Agreements, we will have a
further de-levering opportunity pursuant to our right to cause the
conversion of the New Convertible Notes by exercising a new optional
redemption right in the event that our stock price is in excess of 130%
of the adjusted conversion price of $2.25 per share. We have further
plans to meaningfully reduce our debt through the continued reduction of
inventory and asset sales, which would include the sale of our
subsidiary, Total Plastics, Inc.”
Scheinkman continued, “We have substantially completed the operational
restructuring plan we announced last April, including the opening of our
new facility in Janesville, Wisconsin, which began operations in
December 2015 and serves as a center of excellence for our bar business
in the Midwest. We executed this plan on time and within budget, and
believe that we will realize the expected cost reductions we projected
from the operational restructuring. Savings from this initiative are
already serving to improve performance at the branch and corporate
level. Further, with the operational restructuring plan substantially
behind us, including organizational changes that empower our new branch
management organization to drive better local leadership and
accountability, we are now able to properly evaluate the performance of
each of our branches. Based on that analysis, and given the challenging
conditions in the global metals market in general and in particular the
energy markets, we plan on selling assets related to the energy sector,
which will serve to reduce our debt further and contribute to improved
operating performance.”
Scheinkman concluded, “In total, including the exchange offer planned
for our convertible notes and sales of underperforming and non-core
assets, we are targeting a reduction of our total outstanding
indebtedness of up to $100 million, which when coupled with our
operational restructuring, we believe will improve current operating
performance, and position the Company for future growth.”
Terms of the Senior Secured Notes Exchange Offer
The New Notes being offered in exchange for the Existing Notes have
substantially the same terms as the Existing Notes (without giving
effect to the “Proposed Amendments” described below), except for the
following principal differences (i) the New Notes are being offered
pursuant to an exemption from the registration requirements of the
Securities Act of 1933, as amended (the “Securities Act”), and will not
have the benefit of any exchange offer or other registration rights,
(ii) the New Notes effectively extend the maturity date of the Existing
Notes to December 15, 2018, unless Castle is unable to both (a) complete
the exchange of a portion of its Existing Convertible Notes on or prior
to June 30, 2016, and (b) redeem, on one or more occasions (each, a
“Special Redemption”), an aggregate of not less than $27.5 million of
aggregate principal amount of the New Notes on or prior to October 31,
2016, using cash available to the Company and/or net proceeds from sales
of assets of the Company or a Restricted Subsidiary outside the ordinary
course of business (other than net proceeds derived from the sale of
accounts receivable and inventory (the “Designated Asset Sale
Proceeds”), subject to a penalty, payable in cash and/or stock, in the
Company’s sole discretion (the “Special Redemption Condition”), in which
case the maturity date of the New Notes will be September 14, 2017,
(iii) the new notes will provide that, whether or not the Special
Redemption Condition is satisfied, the Company will have an obligation
to effect Special Redemptions using Designated Asset Sale Proceeds or
other permissible funds until such time as the aggregate amount of
Special Redemptions equals $40.0 million, (iv) the New Notes will
contain modifications to the asset sale covenant providing that the
Company shall not use any net proceeds from asset sales outside the
ordinary course of business to redeem, repay or prepay the Existing
Notes or the Existing Convertible Notes, (v) the granting of a
third-priority lien on the collateral securing the New Notes for the
benefit of the New Convertible Notes will be a permitted lien under the
indenture and (vi) the New Notes will include an event of default if
Castle does not complete the Private Convertible Note Exchanges (as
defined below) by June 30, 2016, subject to certain exceptions.
In conjunction with the Exchange Offer, the Company is soliciting (the
“Consent Solicitation”) consents to certain proposed amendments (the
“Proposed Amendments”) to the Existing Notes and the related indenture
providing for, among other things, elimination of substantially all
restrictive covenants and certain events of default in the indenture and
releasing all of the collateral securing the Existing Notes. The Company
will use cash on hand to fund the consent payment discussed below, as
well as the fees and expenses of the exchange offer and consent
solicitation.
The Exchange Offer for the Existing Notes will expire at 11:59 p.m., New
York City time, on February 12, 2016, unless extended by the Company
(the “Expiration Date”). Holders who validly tender and do not validly
withdraw Existing Notes and deliver a valid consent on or before 5:00
p.m., New York City time, on January 29, 2016, unless extended by us
(the “Early Tender Date”), will receive an additional consent payment of
$20.00 in cash per $1,000 principal amount of notes tendered. The
Exchange Offer is subject to satisfaction or waiver of certain
conditions, including (i) the receipt of valid tenders and consents, not
subsequently withdrawn, of not less than 66-2/3% of Existing Notes that
are eligible to participate in the Consent Solicitation pursuant to the
indenture on or before the Early Tender Date (the “Minimum Participation
Condition”) and (ii) the receipt of the requisite consent of the lenders
under the Company’s senior secured credit facility (the “Senior Secured
Facility”) to the refinancing transactions described herein (the “Credit
Facility Condition”). Tenders of Existing Notes may be withdrawn prior
to 5:00 p.m., New York City time, on January 29, 2016, unless extended.
The Company reserves the right to waive certain conditions to the
Exchange Offer, including the Minimum Participation Condition.
Pursuant the Support Agreements, the Supporting Holders, who hold $120.2
million of the aggregate principal amount of the Existing Notes, have
agreed to tender their Existing Notes in the Exchange Offer. Of the
Supporting Holders, $27.5 million aggregate principal amount of the
Existing Notes are affiliated with the Company and therefore ineligible
under the indenture to participate in the Consent Solicitation. Because
ineligible Existing Notes are not considered outstanding for the purpose
of approving the Consent Solicitation, the aggregate amount of Existing
Notes outstanding for purposes of the Consent Solicitation as of the
date hereof is $182.5 million. The Proposed Amendments require the
consent of holders of not less than 66-2/3% of the outstanding Existing
Notes, or approximately $121.7 million. As of the date hereof,
Supporting Holders who hold approximately $92.6 million of Existing
Notes that are eligible to participate in the Consent Solicitation
pursuant to the indenture have agreed to tender their Existing Notes in
the exchange offer and give their consents to the Proposed Amendments in
the consent solicitation.
The Company has not registered the New Notes under the Securities Act or
any state securities laws. The Exchange Offer is being made, and the New
Notes will be issued, only to holders of Existing Notes that are (i)
“qualified institutional buyers” as that term is defined in Rule 144A
under the Securities Act, or QIBs, in a private transaction in reliance
upon an exemption from the registration requirements of the Securities
Act, (ii) institutional investors which are “accredited investors” as
defined in Rule 501(a)(1), (2), (3), (7) or (8) under the Securities Act
or (iii) not a “U.S. Person” as that term is defined in Rule 902 under
the Securities Act, in offshore transactions in reliance upon Regulation
S under the Securities Act. Documents relating to the Exchange Offer
will only be distributed to holders of outstanding Existing Notes that
have returned a certification letter to us that they are eligible to
participate in the Exchange Offer. Holders of outstanding Existing Notes
who wish to receive a copy of the eligibility letter for the Exchange
Offer may contact D.F. King & Co., Inc. toll free at (800) 591-8269,
(212) 269-5550 (banks and brokerage firms), e-mail at cas@dfking.com
or via the following website: www.dfking.com/cas.
The New Notes will be subject to restrictions on transferability and
resale and may not be transferred or resold except in compliance with
the registration requirements of the Securities Act or pursuant to an
exemption therefrom and in compliance with other applicable securities
laws.
This press release is not an offer to sell, nor a solicitation of an
offer to buy, the New Notes in the United States or elsewhere. The New
Notes have not been registered under the Securities Act and may not be
offered or sold in the United States absent registration or an
applicable exemption from the registration requirements of the
Securities Act. The Exchange Offer is made only by, and pursuant to, the
terms set forth in the related offering memorandum and consent
solicitation. The Exchange Offer is not being made to persons in any
jurisdiction in which the making or acceptance thereof would not be in
compliance with the securities, blue sky or other laws of such
jurisdiction.
Term of Proposed Convertible Note Exchange Offers
In addition to providing for the terms of the Exchange Offer described
above, the Support Agreements provide for, among other things, (a) the
terms of private exchanges in which the Company has agreed to issue New
Convertible Notes to the Supporting Holders in exchange for their
Existing Convertible Notes (the “Private Convertible Note Exchanges”)
and (b) a registered exchange offer in which the Company will offer to
issue New Convertible Notes to all holders of outstanding Existing
Convertible Notes other than the Supporting Holders (the “Registered
Convertible Note Exchange Offer” and together with the Private
Convertible Note Exchanges, the “Convertible Note Exchange Offers”). The
Private Convertible Note Exchanges and Registered Convertible Note
Exchange Offer will be effected on substantially identical terms, which
are described in more detail below.
Pursuant to the Support Agreements, the New Convertible Notes to be
issued will mature on December 31, 2019, and will bear interest at a
rate of 5.00% per annum, payable semi-annually in cash. For each
$1,000 principal amount of Existing Convertible Notes validly tendered
(and not withdrawn) in the Registered Convertible Note Exchange Offer
and exchanged in the Private Convertible Note Exchanges, an exchanging
holder of Existing Convertible Notes (an “Exchanging Convertible
Noteholder”) will receive $700 principal amount of New Convertible
Notes, plus accrued and unpaid interest. All current and future
guarantors of the New Notes, the Existing Notes, the Senior Credit
Facility, and any other material indebtedness of the Company will
guarantee the New Convertible Notes. The New Convertible Notes will be
secured on a “silent” third-priority basis by the same collateral that
secures the New Notes.
The New Convertible Notes will initially be convertible into shares of
the Company’s common stock at a conversion price (the “Conversion
Price”) per share of $2.25. Upon such conversion, the converting holder
also will be entitled to receive an amount equal to a make-whole
premium, payable in cash or common stock, in the Company’s sole
discretion. The remaining terms of the New Convertible Notes will be
substantially similar to the Existing Convertible Notes, with the
exception of certain provisions relating to fundamental change and
optional redemption.
Any reference to the Convertible Note Exchange Offers is for
informational purposes only and does not constitute an offer to sell or
the solicitation of any offer to buy any Existing Convertible Notes.
Consummation of the Convertible Note Exchange Offers is subject to,
among other things, definitive documentation. There can be no assurance
if or when the Company will consummate any such transaction or the terms
thereof. In the event such transactions are completed, they will be
effected pursuant to separate documentation and any such securities may
not be offered or sold in the United States absent registration or an
applicable exemption from registration requirements.
About A. M. Castle & Co.
Founded in 1890, A. M. Castle & Co. is a global distributor of specialty
metal and plastic products and supply chain services, principally
serving the producer durable equipment, oil and gas, commercial
aircraft, heavy equipment, industrial goods, construction equipment,
retail, marine and automotive sectors of the global economy. Its
customer base includes many Fortune 500 companies as well as thousands
of medium and smaller-sized firms spread across a variety of industries.
Within its metals business, it specializes in the distribution of alloy
and stainless steels; nickel alloys; aluminum and carbon. Through its
wholly-owned subsidiary, Total Plastics, Inc., the Company also
distributes a broad range of value-added industrial plastics. Together,
Castle and its affiliated companies operate out of 42 service centers
located throughout North America, Europe and Asia. Its common stock is
traded on the New York Stock Exchange under the ticker symbol “CAS”.
Cautionary Statements Regarding Forward-Looking Information
Information provided and statements contained in this release that are
not purely historical are forward-looking statements within the meaning
of Section 27A of the Securities Act, Section 21E of the Securities
Exchange Act of 1934, as amended (“Exchange Act”), and the Private
Securities Litigation Reform Act of 1995. Such forward-looking
statements only speak as of the date of this release and the Company
assumes no obligation to update the information included in this
release. Such forward-looking statements include information concerning
our possible or assumed future results of operations, including
descriptions of our business strategy, and the cost savings and other
benefits that we expect to achieve from our facility closures and
organizational changes. These statements often include words such as
“believe,” “expect,” “anticipate,” “intend,” “predict,” “plan,”
“should,” or similar expressions. These statements are not guarantees of
performance or results, and they involve risks, uncertainties, and
assumptions. Although we believe that these forward-looking statements
are based on reasonable assumptions, there are many factors that could
affect our actual financial results or results of operations and could
cause actual results to differ materially from those in the
forward-looking statements, including our ability to effectively manage
our operational initiatives and restructuring activities, the impact of
volatility of metals and plastics prices, the cyclical and seasonal
aspects of our business, our ability to effectively manage inventory
levels, our ability to successfully complete our strategic refinancing
process, and the impact of our substantial level of indebtedness, as
well as including those risk factors identified in Item 1A “Risk
Factors” of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2014. All future written and oral forward-looking
statements by us or persons acting on our behalf are expressly qualified
in their entirety by the cautionary statements contained or referred to
above. Except as required by the federal securities laws, we do not have
any obligations or intention to release publicly any revisions to any
forward-looking statements to reflect events or circumstances in the
future, to reflect the occurrence of unanticipated events or for any
other reason.
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