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Major financial recapitalization at Tembec


December 24, 2007
By Pulp & Paper Canada

MONTREAL, QC — Tembec announced a proposed recapitalization transaction with the following key elements:

MONTREAL, QC — Tembec announced a proposed recapitalization transaction with the following key elements:
Conversion of US $1.2 billion of Tembec’s debt into new equity.
Implementation of a new 4-year term loan of US $250 million to US $300 million (final amount to be determined by Tembec) to provide additional liquidity.
Reduction of Tembec’s annual interest expense by approximately $67 million.
Business as usual for employees, trade creditors and customers. They will not be affected by the Recapitalization.
Implementation of the Recapitalization is expected to occur by the end of February 2008.

This recapitalization plan that would reduce its $1.4 billion debt by $1.2 billion, but see existing shareholders immediately lose 95% of their stake. According to Tembec, the proposed restructuring would not affect their customers, suppliers or workforce.
In a statement issued before markets opened on December 19, CEO James Lopez described the recapitalization transaction as “a significant and positive development for Tembec and its stakeholders (and) a consensual solution that is fair to both our noteholders and our shareholders This would result in Tembec emerging as a much healthier entity and “allow for the pursuit of greater opportunities,” said Lopez.

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Under the proposal, which requires the approval of the court and the company’s shareholders and noteholders, Tembec would convert $1.2 billion of its debt into new equity, with the new noteholders emerging with 95% of the freshly issued stock. The debt and loan figures are in U.S. dollars.

Current shareholders would hold about 5% of the new stock, but could have access to additional equity later if Tembec shares climb above $12.

During a conference call with analysts and current noteholders, Lopez and chief financial officer Michel Dumas said they did not expect any legal issues or challenges to block the plan. Asked whether a petition of bankruptcy might be more advantageous for debtholders or shareholders, Lopez ruled that option out, and would not disclose other restructuring scenarios considered by the company.

Separate meetings for current noteholders and shareholders are to be held on February 22 in Montreal, QC, to vote on the proposal. The plan has to be approved by a majority of two thirds to be accepted, Lopez said.

The resignation of Emanuele (Lino) Saputo, Tembec board member and largest shareholder, was announced earlier in December. Lopez stated that the Saputo had resigned strictly for personal reasons and his resignation was not related to the recapitalization plan.


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