Business News

ABITIBIBOWATER ANNOUNCES SECOND PHASE OF COMPREHENSIVE RECAPITALIZATION PROPOSAL

Monday 16. March 2009 - US$ ABH (NYSE, TSX) - Net debt to be reduced by $2.4 billion - Annual interest expense to be reduced by $162 million - $350 million in new funds to be raised with new debt not maturing until 2014 - Business continuity for employees, trade creditors and customers - Pre-offer support of approximately 34% of existing note holders - Implementation of recapitalization expected to occur by early May 2009

AbitibiBowater Inc. (“AbitibiBowater” or the “Company”) announced today a second phase of its comprehensive recapitalization proposal (the “Recapitalization”) with respect to its Abitibi-Consolidated Inc. subsidiary. The Recapitalization aims to reduce the Company’s debt burden and enhances liquidity.
The Recapitalization of Abitibi-Consolidated will provide a stronger financial base for the execution of AbitibiBowater’s operating strategy and enhance the long-term value of the Company.

All obligations to trade creditors and to employees, including under the Company’s pension and benefit plans, are unaffected by the Recapitalization and this transaction will ensure business continuity for them as well as for customers.

Noteholders holding in excess of approximately $1 billion of outstanding Abitibi Notes (defined below) (approximately 34% of the total outstanding) have agreed to vote in favor of the Recapitalization. AbitibiBowater will solicit additional support for the Recapitalization from other noteholders, from its secured noteholders and from its lenders.

“This Recapitalization is another important step in AbitibiBowater’s ongoing efforts to deleverage the Company and refinance its current debt obligations,” stated David J. Paterson, President and Chief Executive Officer. “The transaction offers substantial benefits to AbitibiBowater, increasing its financial stability while also reducing the Company’s annual interest costs and improving overall liquidity.”

AbitibiBowater’s Board of Directors has determined that the Recapitalization is in the Company’s best interests and its stakeholders, given, among other reasons, that it will reduce net debt by approximately $2.4 billion, and significantly improves AbitibiBowater’s capital structure.

The Board of Directors relied on many factors in arriving at its determination, including recommendations by Company Management. AbitibiBowater’s financial advisor, BMO Capital Markets has provided an opinion to the Board of Directors in connection with the transaction.

“With this comprehensive Recapitalization, AbitibiBowater is significantly reducing its debt levels and improving its liquidity,” said Dick Evans, Chairman of the Board of Directors. “The Board and management believe this solution creates a stronger Company in the interest of all stakeholders, and allows the Company to move forward with confidence to meet the needs of its customers.”

The Recapitalization includes the following key elements:

– The conversion of $2.9 billion of eligible unsecured notes issued by
Abitibi-Consolidated (the “Abitibi Notes”) into (i) New Notes
consisting of approximately $321 million aggregate principal amount of
12.5% First Lien Notes due March 31, 2014 and approximately
$810 million aggregate principal amount of 11% Second Lien Notes due
June 30, 2014, (ii) approximately 86.7 million shares of AbitibiBowater
Common Stock and (iii) an aggregate of approximately 230.7 million
Warrants (divided among Series A Warrants, Series B Warrants and Series
C Warrants) to purchase one share of AbitibiBowater Common Stock per
warrant at an exercise price equal to, respectively, $1.00, $1.25 and
$1.50 per share.
– A Concurrent Offering of approximately $389 million of First Lien Notes
and 222.2 million Series D Warrants to purchase one share of
AbitibiBowater Common Stock per warrant at $1.25 per share, for an
aggregate purchase price of approximately $350 million. Certain
investors have provided binding commitments to subscribe for
$150 million thereof. AbitibiBowater and Abitibi-Consolidated are in
advanced discussions to secure additional commitments. Qualifying
noteholders may participate in the Concurrent Offering for an aggregate
purchase price of up to $100 million of additional First Lien Notes.
The uncommitted portion of the Concurrent Offering may be backstopped
as permitted by market conditions. There can be no assurance that
AbitibiBowater and Abitibi-Consolidated will enter into any such
additional commitments or backstops.
– The repayment in full of the Company’s $413 million 13.75% Secured
Notes due 2011, and any accrued and unpaid interest thereon.
– Interest accrued but not paid as well as a portion of the principal
outstanding under the existing term loan facility due March 30, 2009
will be repaid cash such that the principal amount outstanding will be
reduced to $200 million and the maturity date shall be extended to
March 31, 2012.
– The Commercial Division of the Superior Court of Quebec in Montreal
will be asked to grant an interim order under the Canada Business
Corporations Act (CBCA) in connection with the Recapitalization,
including calling meetings of the affected noteholders and lenders.
– The Recapitalization is conditional upon, among other things:
– final Court approval;
– the completion of the sale of the Company’s 60 percent interest in
Manicouagan Power Company (for which it announced today its
acceptance of a non-binding proposal from Hydro-Quebec which could
result in gross proceeds of C$615 million);
– the completion of the previously announced exchange offers, notes
offering and private placement by AbitibiBowater’s subsidiaries,
Bowater Incorporated, Bowater Canada Finance Corporation and Bowater
Finance II LLC.;
– the closing of the Concurrent Offering resulting in gross proceeds of
$350 million;
– the completion of the amendment of the convertible notes of
AbitibiBowater, into $190.0 million of new convertible notes of
AbitibiBowater which shall be convertible for AbitibiBowater’s Common
Shares at a price of $1.75 per share.
– If approved, implementation of the Recapitalization is expected to
occur by early May, 2009.

Effect on Affected Noteholders and Lenders
——————————————

If the Recapitalization is completed, affected noteholders and lenders
will be affected as described below.
Abitibi Notes: Noteholders will receive, for each $1,000 principal amount
of Abitibi Notes, the principal amount of New Notes, and numbers of Common
Shares and Warrants as shown in the table below:

————————————————————————-
Principal Principal
Amount Amount
of of
First Second
Lien Lien Common Series A Series B Series C
Eligible notes Notes Notes Shares Warrants Warrants Warrants
————————————————————————-
7.875% Notes
due 2009 $75 $270 29.422 26.107 26.107 26.107
————————————————————————-
15.50% Notes
due 2010 $175 $320 29.422 26.107 26.107 26.107
————————————————————————-
8.55% Notes
due 2010 $75 $270 29.422 26.107 26.107 26.107
————————————————————————-
7.75% Notes
due 2011 $75 $270 29.422 26.107 26.107 26.107
————————————————————————-
Floating
Rate Notes
due 2011 $75 $270 29.422 26.107 26.107 26.107
————————————————————————-
6.0% Notes
due 2013 $75 $270 29.422 26.107 26.107 26.107
————————————————————————-
8.375% Notes
due 2015 $75 $270 29.422 26.107 26.107 26.107
————————————————————————-
7.4% Debentures
due 2018 $75 $270 29.422 26.107 26.107 26.107
————————————————————————-
7.5% Debentures
due 2028 $75 $270 29.422 26.107 26.107 26.107
————————————————————————-
8.5% Debentures
due 2029 $75 $270 29.422 26.107 26.107 26.107
————————————————————————-
8.85% Debentures
due 2030 $75 $270 29.422 26.107 26.107 26.107
————————————————————————-

Accrued and unpaid interest up to April 1, 2009 shall be satisfied through
the issuance of First Lien Notes.
In addition, in the Concurrent Offering for each $1,000 principal amount
of Abitibi Notes held on the specified claims measurement date, qualifying
noteholders shall be entitled to (but shall not have the obligation to) submit
$33.95 in cash in consideration for $37.72 of additional First Lien Notes and
21.553 Series D Warrants to purchase one AbitibiBowater Common Share per
warrant at exercise price of $1.25 per share.
Term Loan Facility: Interest accrued but not paid, as well as a portion of
the principal outstanding under the term loan facility due March 30, 2009 will
be paid such that the principal amount outstanding will be reduced to $200
million. The term loan facility will also be replaced to, among other things,
change the interest rate to LIBOR + 600 basis points and the maturity date to
March 31, 2012.
Secured Notes: The Secured Notes, and any accrued and unpaid interest
thereon, shall be repaid in full in cash.

Meetings of Noteholders and Lenders
———————————–

The Commercial Division of the Superior Court of Quebec in Montreal will
be asked to call meetings of the holders of Abitibi Notes, holders of Secured
Notes and lenders under the Senior Term Loan Facility respectively to obtain
their approvals for the Recapitalization under the CBCA. Details of the
Recapitalization will be provided in an information circular expected to be
sent to noteholders, secured noteholders and lenders by early April 2009, and
the meetings are expected to be held at the Fairmont Queen Elizabeth Hotel,
900 Rene-Levesque Blvd West Montreal, QC H3B 4A5, Canada on or about April 30,
2009.

Issuance of Common Shares and Warrants and Related Stock Exchange Matters
————————————————————————-

In connection with the Recapitalization, and as detailed above,
AbitibiBowater intends to issue Common Shares and warrants convertible into
Common Shares that would, on a fully-diluted basis, constitute in excess of
90% of the currently outstanding Common Shares. As such, the transaction and
such issuance would normally require approval of the AbitibiBowater
stockholders according to the Shareholder Approval Policy of the New York
Stock Exchange (the “NYSE”). However, in connection with the approval of the
Recapitalization, and pursuant to an exception provided by the NYSE’s
Shareholder Approval Policy, the Board of Directors and Audit Committee of
AbitibiBowater determined that the delay in the Recapitalization that would be
caused if AbitibiBowater were to secure stockholder approval prior to the
launch and publication of the Recapitalization, given the pending maturities
of Abitibi-Consolidated’s debt instruments, severe constraints on
Abitibi-Consolidated’s liquidity, and the current state of the credit and
capital markets, would seriously jeopardize AbitibiBowater’s financial
viability. Accordingly, AbitibiBowater’s Board of Directors and Audit
Committee, pursuant to an exception provided by the NYSE Shareholder Approval
Policy, expressly approved AbitibiBowater’s omission to seek stockholder
approval of the Recapitalization that would otherwise have been required. The
NYSE has accepted AbitibiBowater’s application of the exception. In reliance
on the exception and in accordance with NYSE policy, AbitibiBowater is mailing
a letter to all its stockholders notifying them of its intention to issue the
Common Shares and warrants convertible into Common Shares without seeking
their approval. AbitibiBowater also intends to rely on an exemption from the
Toronto Stock Exchange stockholder approval requirements, permitted by Section
602(g) of the TSX Company Manual, by relying on such exception of the NYSE,
AbitibiBowater’s principal trading exchange.