Standard Brands plan sets up new ownership deal; debt-for-equity swap arrangement set to go to judge.

Standard Brands Paint Co. filed an amended reorganization plan Feb. 8 calling for one of its major secured creditors, a Boston-based venture capital fund, to take a controlling interest in the company.

All parties in the bankruptcy have stated they would approve of the plan, said Standard Brands spokeswoman Kathy Rosin. The plan goes before a bankruptcy court judge Feb. 25. If the judge approves it, the plan goes before the creditors and shareholders for a vote.

Boston-based Fidelity Capital & Income Fund and Rochester, N.Y.-based Kodak Retirement Fund joined forces in December to buy $22 million in debt owed to BankAmerica Corp. by Standard Brands. The two funds are operating jointly as Fidelity Fund, with Fidelity Capital & Income Fund taking the dominant role.

Under the reorganization plan, Fidelity Fund would make a debt-for-equity swap, injecting $8 million into Standard Brands. In return Fidelity Fund would receive a 50.5 percent stake in the company and a $20 million note, which Standard Brands would be obliged to pay within three years. The money would come from the sale of two subsidiaries and some real estate, Rosin said.

Torrance-based Standard Brands, which manufactures, distributes and retails paint, has been operating under Chapter 11 bankruptcy protection for a year. The company operates 119 paint stores and 10 art supply stores in eight western states.

This newest reorganization plan is the third the company has filed. Each was filed as negotiations among the various parties to the bankruptcy progressed, and each replaced the one before it.

Fidelity Capital & Income Fund officials typically perform their own internal analysis of companies the fund invests in, and restructures according to their needs, including retaining or dismissing executives, said Russ Belinsky, a senior vice president and principal with West Los Angeles-based Chanin & Co., an investment banking firm.

But Martin Ackerman, an attorney for Fidelity Fund, said Standard Brands' current management is likely to stay. Further, Fidelity Fund has no plans to liquidate the company, he added.

Although fund officials would get involved in Standard Brands' restructuring, they wouldn't participate in the nuts and bolts operation of the business, Belinsky added.

Under the new reorganization plan, Standard Brands current nine-member board of directors would be replaced with a new four-member, independent board. Two would be nominated by Fidelity Fund, but they wouldn't be fund officials. Ackerman would be one of these.

A third board member would be Standard Brands President Rick Loeffler, who is on the current board. A fourth is expected to be named before the Feb. 25 hearing by Transamerica Life Cos. and Sun America Investments, two Los Angeles-based insurance companies that are owed a total of $114 million in secured debt.

At Standard Brands' next annual meeting, which would be held within 12 months of the plan's effective date, shareholders would vote whether to retain those four board members and for a fifth that hasn't been named, Rosin said.

Every prospective board member who has been named is an expert in the workout and turnaround business, Ackerman added.

Also under the new reorganization plan, unsecured creditors would get $8.8 million in cash, or 40 cents for every dollar in claims, and would divide seven properties Standard Brands owns in Colorado, according to court documents.

The interest charged on the $114 million debt to Transamerica and Sun America would be lowered from its current 11 percent. During the first year of the plan's effectiveness, Standard Brands would pay 6.5 percent on the debt and each succeeding year the interest rate would rise until it caps at 9 percent.

Standard Brands' preferred stock would be converted into 5.5 million shares of common stock, representing 24.5 percent of all the shares.

The company's two employee stock ownership plans would be dissolved. Participating employees would receive proceeds from the shares they owned as well as shares that hadn't yet been allocated, according to the plan.

Altogether, Standard Brands would issue 16.8 million new shares of common stock, so the existing 5.6 million shares would be diluted to equal about 25 percent of the new total, Rosin said.

The company's stock is currently trading at between $1.75 and $2 a share. It is hard to predict what the new stock would trade at because the company is being restructured and $53 million of the company's current $166 million debt would be eliminated, Rosin said.