News

Charterhouse Recapping Cellu Tissue

by Kelly Holman
409 words
15 March 2004
Daily Deal

Charterhouse Group Inc. is recapitalizing its specialty papers maker Cellu Paper Holdings Inc., officials of the New York private equity firm confirmed March 12. The new debt will cover the $100 million dividend to the private equity backer.

J.P. Morgan Chase & Co. and CIBC World Markets Corp. led the issue of $162 million in high-yield senior secured notes to support the recap of the East Hartford, Conn. company. The new debt was used to fund a $100 million shareholder distribution, of which $82 million will be distributed to Charterhouse and its investors.

"This transaction allowed us to realize a portion of the value we've created at Cellu Tissue for our investors and yet remain an investor in Cellu Tissue and participate in its future growth," said Joseph S. Rhodes, a partner at Charterhouse Group.

The remaining $62 million of the new debt issuance will be issued to refinance existing debt.

Charterhouse will retain its 82% common stock stake in Cellu Tissue, which makes specialty paper products for leading consumer products companies including Procter & Gamble Co. and Kimberly-Clark Corp. Its products are used in baby diapers and adult incontinence products, among other products.

Although Charterhouse acquired Cellu Tissue in 1998 for $65 million when it had just two paper mills and $10 million in Ebitda, the company is much larger now. Since then Charterhouse has overseen a buy-and-build strategy, transforming the business into a major specialty paper player.

"We saw an opportunity when we bought Cellu Tissue in 1998 to become a contract manufacturer for the leading branded diaper makers in the U.S.," Rhodes said.

In order to grow, the Connecticut company executed the acquisitions of four different paper producing operations, including the September 2002, $11 million purchase of the Neenah, Wis.-based paper mill operations of American Tissue, formerly a business of Kimberly-Clark.

That came a year after former Kimberly Clark executive Russell Taylor been hired as Cellu Tissue's chief executive.

"We think over the course of the next two to three years the Neenah plant will create substantial value for the company," said Rhodes.

At full capacity, the plant would help boost Cellu Tissue's Ebitda -- $36 million in fiscal year ended Feb. 29 -- by 60% to 70%.

Proskauer Rose LLP partner Allan R. Williams was counsel to Charterhouse on the recap.

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