Shearman & Sterling Advises on Cinram Refinancing

Shearman & Sterling represented Cinram, Inc. and Cinram (US) Holding’s Inc., as Borrowers, and numerous Cinram affiliates, as Guarantors, in a comprehensive refinancing and recapitalization transaction.

The transaction involved: (1) bifurcating Cinram’s roughly $367 million revolver and term loans agented by JPMorgan Chase Bank, N.A. into first and second lien loans, with a $30 million paydown of the amended first lien loan and converting $90 million into a new mandatorily exchangeable second lien loan; (2) renegotiating Cinram’s domestic and international commercial agreements with its largest customer, Twentieth Century Fox Home Entertainment LLC; and (3) entering into numerous accommodation agreements with Fox and the lenders.

These accommodation agreements include an Access Agreement, a Non-Disturbance Agreement governing the relative rights of the lenders and Fox, a Lease-Sublease arrangement for one of Cinram’s largest US facilities, and a Warrant Agreement entitling Fox to receive approximately 17% of the equity of Cinram’s parent entity, a Canadian income fund, vesting over the next three years. Also in connection with the recapitalization, the lenders were granted approximately 10% of the equity of the parent fund, a right to receive an additional 5% of the equity of the parent fund on June 30, 2011 if the second lien loan remains outstanding, and a right to convert the $90 million second lien loan into equity of the parent fund to the extent that the second lien loan remains outstanding on December 31, 2011. In order to achieve this recapitalization out of court, Cinram successfully obtained 100% consent from a widely held lending syndicate.

Cinram is one of the world’s largest providers of pre-recorded multimedia products and related logistics services. With facilities in North America and Europe, Cinram manufactures and distributes pre-recorded DVDs, audio CDs, and CD-ROMs for motion picture studios, music labels, publishers, and computer software companies around the world. Cinram also provides distribution and logistics services to the telecommunications industry in North America through its wireless subsidiaries.