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DJ Judge Approves Masonite's Plan to Swap Debt for Equity

Masonite International Inc. easily won approval for its bankruptcy-reorganization plan Friday, receiving nearly unanimous support from its voting creditors to implement a debt-for-equity swap that will hand control of the door maker to its senior lenders.

One hundred percent of the company's senior secured lenders, owed more than $1.4 billion, backed the plan, as did 99.9% of the company's senior subordinated noteholders, an attorney for Masonite told Judge Peter J. Walsh at a hearing Friday in the U.S. Bankruptcy Court in Wilmington, Del. Walsh seemed impressed and surprised that the road to reorganization had been navigated so smoothly by Masonite and its various stakeholders.

"In terms of deleveraging the balance sheet, and in terms of the absence of any serious disputes, and in terms of the vote, I haven't seen one like this in 10 years," Walsh said, adding that he had only presided over two reorganizations in the past year.

Of course, Masonite had a bit of a head start in its race to repay creditors and emerge from Chapter 11. It entered bankruptcy protection on March 16, battered by the housing industry downturn but having already negotiated a plan to slash nearly $2 billion in debt from its balance sheet.

Under the plan, private-equity firm Kohlberg Kravis Roberts & Co. will see its equity stake wiped out while senior lenders will get a 97.5% stake in the reorganized company. Bondholders will get a 2.5% stake in the new Masonite plus warrants entitling it to additional common shares in the new company.

Unsecured claims are to be paid in full, and Masonite's management will be eligible for a 10% stake in the new company under a management-incentive program that accompanied the Chapter 11 plan.

With confirmation under its belt, Masonite is looking to exit bankruptcy protection in 10 days, according to Jon Henes, an attorney for Kirkland and Ellis LLP. Henes, who represents Masonite, said Friday was a "historic day" for a company that was caught off guard by the subprime mortgage crisis and its impact on the housing industry.

"You had a company who all of a sudden didn't have any place to actually sell its doors," he said, adding that the 75% decline in housing starts basically equated to Masonite losing 75% of its customers.

The decline in revenue took its toll. Masonite faced three straight years of annual losses and responded by shuttering plants and shaving its work force by more than 40%. Now that it has succeeded in trimming its debt, too, Henes believes the company is poised to weather the current economic climate and maintain a "strong position" in the marketplace.

Masonite was founded by William H. Mason in 1926. Based in Missisauga, Ont., and Tampa, it is one of the world's largest producers of interior and exterior doors.

Reprinted with permission from Daily Bankruptcy Review. All rights reserved.