Primary Energy Recycling Corporation Announces Update on Strategic Review, Proposed Restructuring Transaction and Suspension of Common Share Dividends



    OAK BROOK, IL, June 19 /CNW/ - As previously announced, the Board of
Directors of Primary Energy Recycling Corporation (TSX: PRI.UN) (the
"Company") has been engaged in a review of strategic alternatives available to
the Company to enhance unitholder value. Based on their review to date, the
Board of Directors today outlines its proposed plan for the Company. The key
features of the plan include the following:

    
    -   The recapitalization of the Company (the "Recapitalization"),
        resulting in the conversion of all of the Company's outstanding
        11.75% subordinated notes, including those held in the form of an
        enhanced income security ("EIS") and those held separately
        (collectively, the "Subordinated Notes") into newly issued common
        shares of the Company.

    -   Obtaining an amortizing new senior debt facility with cash sweep
        provisions that is expected to result in the substantial
        de-leveraging of the Company over the term of the facility.

    -   Restructuring of the Company's management agreement aimed at giving
        the Company greater control of the business and increased flexibility
        to explore new opportunities that are in the best interests of
        unitholders going forward.
    

    The Board of Directors initiated a strategic review process last year
that resulted in the decision to pursue, together with EPCOR USA Ventures LLC
("EPCOR" or the "Manager"), the Company's external manager and holder of an
approximate 15.4% interest in Primary Energy Recycling Holdings LLC ("Primary
Energy"), the sale of the Company or Primary Energy. The Company retained
Credit Suisse Securities (USA) LLC ("Credit Suisse") and Genuity Capital
Markets ("Genuity") as its financial advisors to conduct a two stage auction
process. The Board reviewed the final bids with its financial and legal
advisors and concluded that none of the offers would provide adequate value to
the Company's securityholders and that the proposed Recapitalization is the
best alternative for the Company.
    Concurrently with the sale process, the Company has also been pursuing
options for the refinancing of its US$135 million term loan facility (the
"Credit Facility"). The current lending market is such that refinancing the
Credit Facility is only feasible if there is no other material debt
outstanding, including the Subordinated Notes. The Board has determined,
therefore, that converting the Subordinated Notes into equity is required to
obtain refinancing of the Credit Facility.
    The proposed Recapitalization is a means by which the Company can reduce
its debt and associated interest costs in a manner that the Board believes
will address the Company's refinancing needs and create a capital structure
going forward that will be attractive to potential lenders and investors. The
Recapitalization, which is subject to approval by the Company's
securityholders and the Supreme Court of British Columbia, would result in all
of the Subordinated Notes being converted into newly issued common shares of
the Company on the basis of sixteen (16) new common shares for every Cdn$2.50
principal amount of Subordinated Notes held. Immediately following the
conversion of the Subordinated Notes, all of the common shares of the Company
(including the new common shares issued on the conversion of the Subordinated
Notes) would be consolidated on the basis of one new common share for every
seventeen (17) existing common shares outstanding.
    Concurrently with the completion of the Recapitalization, the capital
structure of Primary Energy will be amended to replicate the effects of the
Recapitalization and as a result, all of the preferred membership interests of
Primary Energy (including those held by EPCOR) will be converted into newly
issued common membership interests of Primary Energy. As such, EPCOR's
interests in Primary Energy will be treated identically to the interests of
all EIS holders.
    Following completion of the Recapitalization, there will be approximately
38.9 million common shares of the Company outstanding and approximately 44.3
million common membership interests of Primary Energy outstanding. Currently,
EIS holders own in the aggregate almost 100% of the common shares of the
Company, the Company holds approximately 83.0% of the common equity of PERH
and EPCOR owns the remaining 17% of the common equity of PERH. Following
completion of the Recapitalization, EIS holders will own in the aggregate
approximately 81.7% of the common shares of the Company, the Company will hold
approximately 85.7% of the common equity of PERH and EPCOR will hold the
remaining 14.3% of the common equity of PERH.
    The Board has retained Genuity to provide a fairness opinion in
connection with the proposed Recapitalization. Major holders representing over
one-third of the outstanding EISs have indicated their willingness to support
the Recapitalization.
    On closing of the Recapitalization, the Company and EPCOR have agreed in
principle to make the following changes to the current management agreement:

    
    -   A new Chief Executive Officer will be selected by and report to
        Primary Energy.

    -   Certain key employees of EPCOR will be dedicated full-time to all
        other executive management functions and will report to the new CEO.

    -   EPCOR will continue to provide certain back office and plant
        management functions.

    -   The Company will have the right to terminate the management agreement
        for a specified price, reducing over time, if EPCOR agrees to sell
        its interests in Primary Energy.

    -   If EPCOR owns more than 10% of the equity interests in Primary
        Energy, the Company will have the right to require EPCOR to sell its
        interests in a sale of Primary Energy, provided that if EPCOR opposes
        the sale of its interest, any such sale transaction will require the
        approval of 2/3 of the votes cast by the Company's shareholders, such
        calculation to be made as if EPCOR, solely for this purpose, was a
        shareholder of the Company that voted against the sale. If EPCOR's
        interests in Primary Energy fall below 10%, the Company will have the
        right to unilaterally require EPCOR to sell its interests in a sale
        transaction.

    -   EPCOR and the Company will agree to effectively terminate the
        allocation agreement and terminate all existing rights of first offer
        as between EPCOR and the Company.
    

    The Company and EPCOR are currently in the process of finalizing
definitive documentation to reflect these changes. The Board believes that
this new management arrangement will give the Company greater control of the
business and increased flexibility to explore new opportunities that are in
the best interests of unitholders going forward.
    Based on the results of the sale and refinancing efforts described above,
the Board has concluded that converting the Subordinated Notes into equity,
refinancing the Credit Facility and restructuring the Company's management
arrangements is the best path forward to preserve and enhance unitholder value
at this time.
    In preparation for refinancing and to reduce the loan amount under the
new credit facility, the Board of Directors has decided to suspend the payment
of cash dividends to holders of the Company's common shares. Distributions on
all outstanding common membership interests of Primary Energy, including those
held by the Company and those held by EPCOR, will also be suspended. The
distribution of Cdn$0.06667 per EIS unit announced on May 20, 2009 for payment
on June 30, 2009 will be paid as announced. In addition, the Company intends
to continue to make its scheduled interest payments on the Subordinated Notes
until they are converted into Common Shares. An interest payment of
Cdn$0.02448 per Cdn$2.50 principal amount of Subordinated Notes for the period
from June 1 to June 30, 2009 will be paid on July 31, 2009 to holders of
record as of June 30, 2009.
    "The Company has rigorously explored and evaluated its strategic options
and the outlined plan is a positive step for the Company and its investors,"
said Michel Lavigne, Chair of the Board of Directors. "Completion of this plan
promotes the Company's long term viability, provides it with a capital
structure that should be accretive to investors over the medium term and
allows for future growth or consideration of other strategic options. In the
near term, the Company will be working diligently to advance the refinancing,
will be working with EPCOR to finalize documentation relating to the
management restructuring and will continue to evaluate its contracts with its
host steel mills to enhance value for the Company's unitholders. Finally, the
Company's performance during arguably one of the largest down turns in steel
production is a testament to our investment in some of the best steel mills in
the country."
    Further details of the Recapitalization will be provided in an
information circular expected to be distributed to the Company's shareholders
and noteholders in late June or early July. The Credit Facility expires on
August 24, 2009. Failure to approve the proposed Recapitalization and
refinance the Credit Facility on or prior to maturity will cause the Company
to be in default of the Credit Facility.

    This press release is not an offer to sell or the solicitation of an
offer to buy the new common shares issued in connection with the
Recapitalization. Such securities have not been and will not be registered
under the United States Securities Act of 1933, as amended, and may not be
offered or sold in the United States absent registration or an applicable
exemption from the registration requirements.

    The Company will hold a Conference call on June 19, 2009 at 2 PM EDT to
answer questions about the contents of this release. The conference call
details are as follows:

    
                      Friday, June 19, 2009 at 2 pm EDT
             The telephone numbers for the conference call are:
                               (416) 644-3415
                                     or
                               (800) 732-9307
    

    A conference call replay will be available until midnight on Friday, June
26, 2009 (EDT) by calling (416) 640-1917 or (877) 289-8525. Please enter the
passcode 21309453 followed by the number sign when instructed. A webcast
replay will be available for 90 days by accessing a link through the Investor
Information section at www.primaryenergyrecycling.com.

    Forward-Looking Statements

    When used in this news release, the words "anticipate", "expect",
"project", "believe", "estimate", "forecast" and similar expressions are
intended to identify forward-looking statements. Such statements are subject
to certain risks, uncertainties and assumptions pertaining, but not limited,
to the successful completion of the Recapitalization and refinancing of the
Credit Facility, operating performance, regulatory parameters, weather and
economic conditions and the factors discussed in the Company's public filings
available on SEDAR at www.sedar.com. These forward-looking statements are made
as of the date of this press release and, except as required by applicable
securities laws, the Company assumes no obligation to update or revise them to
reflect new events or circumstances.

    About Primary Energy Recycling Corporation

    The Company owns a majority interest in Primary Energy. Primary Energy,
headquartered in Oak Brook, Illinois, indirectly owns and operates four
recycled energy projects and a 50 per cent interest in a pulverized coal
facility (collectively, the "Projects"). The Projects have a combined
electrical generating capacity of 283 megawatts and a combined steam
generating capacity of 1.8 MMlbs/hour. Primary Energy creates value for its
customers by capturing and recycling waste energy from industrial and electric
generation processes and converting it into reliable and economical
electricity and thermal energy for its customers' use. For more information,
please see www.primaryenergyrecycling.com.





For further information:

For further information: V. Michael Alverson, Chief Financial Officer,
Primary Energy Recycling Corporation, (630) 371-0639,
investorinfo@primaryenergy.com

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Primary Energy Recycling Corporation

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