Winnipeg Free Press - PRINT EDITION

Troubled ice companies could be on path to merger

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SIX weeks after Winnipeg-based Arctic Glacier Income Fund received court-sanctioned bankruptcy protection, its biggest rival may be going down the same path and the endgame may be a merger of the two firms.

The Wall Street Journal is reporting Dallas-based Reddy Ice is in the final stages of preparing for its own bankruptcy-protection action.

The paper is also reporting an attempt may be made to merge the two struggling packaged-ice companies.

A U.S. source familiar with the business said it has been known for some time Centerbridge, a $17-billion New York hedge fund has been buying up Reddy Ice's distressed credit notes.

The source told the Free Press a hedge fund like Centerbridge would derive more value from buying up Reddy Ice's debt and orchestrating a so-called prepackaged bankruptcy-settlement agreement with all of Reddy's stakeholders if it was also able to make a strong bid to acquire Arctic.

"For years and years now, Reddy and Arctic have coveted each others assets," the source said. "There is enormous industrial logic in putting these two together."

Last week, Arctic Glacier received an extension to its court-approved stay of proceedings until June 27.

The main intent of the process initiated by Arctic's secured lenders, West Face Capital and the CPP Investment Board, is to find investors willing to invest to take the secured lenders out of the business. (Arctic had breached its loan covenants and has used up all its available credit).

The first stage of the sale and investor-solicitation process (SISP) ended March 28. The monitor reported to the court a number of letters of interest from potential investors had been received.

Richard A. Morawetz, the managing director of Alvarez & Marsal Canada ULC, the court-appointed monitor in Arctic's Companies' Creditors Arrangement Act (CCAA) proceedings, said, "The court would not likely have granted such an extension if there had been opposition to a further extension by the lender group, or the court was not satisfied regarding the progress being made under the SISP."

Rumours of a merger between the two largest packaged-ice companies is not surprising.

"Think about it," the source said.

"If these two companies were to combine, instead of beating the crap out of each other, they could address the competitive stuff" that had brought them under the intense scrutiny of U.S. regulators.

Arctic and Reddy were two of the main targets in an anti-trust investigation in the U.S. that started in 2008 that set both companies on a downward spiral with a clouded future. It cost the two companies millions in legal expense and Arctic agreed to a $12.5-million fine.

That costly distraction coincided with the global recession and subsequent credit crunch. Both companies were forced to refinance sizable chunks of low-interest debt with new lenders at significantly higher interest rates.

At the same time, the competitive landscape changed and cosy regional monopolies started to erode and both companies were facing much more competition from retailers who produced and sold their own ice.

Arctic's units were delisted from the TSX in October and Reddy's shares were delisted from the NYSE in December.

The industry source guessed there is as much as $30 million to $40 million in cost savings that could be achieved if the two companies combined.

In addition, he said, for the first time ever national retailers would have a truly national packaged-ice provider to deal with.

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition April 10, 2012 B4

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