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Cinram Proposes Refinancing Plan

Cinram International Income Fund announced a proposed refinancing and recapitalization transaction with its current lenders.

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Unedited press release follows:


TORONTO, Jan. 25 – Cinram International Income Fund (together with its subsidiaries where applicable, “Cinram” or the “Fund”) announced today a proposed refinancing and recapitalization transaction (the “Refinancing and Recapitalization”) with its current lenders. In addition, Cinram has agreed to the material terms that will form the basis for further agreements with a major customer for a term of three years, subject to completion of the Refinancing and Recapitalization.

“This refinancing and recapitalization transaction is a significant and positive development for Cinram and its stakeholders. It represents a reasonable and fair transaction for Cinram, its lenders and its unitholders, and it meets Cinram’s previously stated business objectives of improving its capital structure,” said Steve Brown, CEO of Cinram.

A majority of the Fund’s unitholders have consented in writing to the Refinancing and Recapitalization, including the issuance of new equity units and warrants detailed below.

The following are the key elements of the changes to Cinram’s capital structure that would result from the proposed transactions:

• Amendment and extension of Cinram’s senior secured credit facility (the “Credit Facility”) to December 31, 2013.

• Reduction in the amount of term debt outstanding and revolving commitments available under the amended Credit Facility:

• Existing term debt of approximately US$367 million to be reduced by US$120 million through

• cash paydown at closing in the principal amount of US$30 million; and

• exchange of outstanding first-lien term debt in the amount of US$90 million for US$90 million second-lien secured debt that is mandatorily exchangeable into equity of the Fund on December 31, 2011 if not earlier repaid from equity proceeds.

• Reduction of commitments under revolving facility from US$100 million to US$35 million.

• An option for Cinram to raise new equity proceeds to repay the mandatorily exchangeable secured debt through the end of 2011.

• The issuance of up to 9.85 million Cinram units to lenders that consent to the Refinancing and Recapitalization by February 10, 2011.

• The issuance of warrants to acquire 13 million Cinram units.

The new capital structure, which Cinram is seeking to implement as soon as possible, is consistent with Cinram’s strategic goal to reduce its debt levels to permit focus on core operations. The continued implementation of this strategic goal has resulted in a reduction of debt by approximately US$275 million over two years through a combination of discount debt repurchases and par repayments with the proceeds of certain non-core asset sales and cash flow from operations. The Refinancing and Recapitalization will further reduce Cinram’s debt balance while continuing to maintain strong cash liquidity and availability. As at December 31, 2010, Cinram’s consolidated cash balance was US$164.4 million.

Cinram’s Board of Trustees is unanimously recommending that all securityholders support the transaction. The Refinancing and Recapitalization will provide a stronger financial base for the execution of Cinram’s operating strategy, and the post-transaction capital structure will provide a platform for attracting new customers and solidifying Cinram’s position as a strong value-adding supplier. Cinram has commenced an amendment process with the lenders under the Credit Facility with respect to the Refinancing and Recapitalization and is continuing to solicit additional lender support for the transaction. All members of a steering committee of lenders, holding in aggregate approximately 50% of the loans and commitments under the Credit Facility, have executed a consent and support agreement with Cinram whereby they have agreed to consent to and support the Refinancing and Recapitalization and the arrangements with Cinram’s major customer. As part of the amendment process, lenders outside the lender steering committee are being provided today with the terms of the Refinancing and Recapitalization and Cinram is seeking the full support of all lenders based on the consent and support of the lender steering committee. Lenders that execute and deliver a consent to the Refinancing and Recapitalization by February 10, 2011 will receive a consent fee equal to their pro rata share (based on the full amount outstanding under the Credit Facility) of: (a) approximately US$11.2 million; (b) approximately 6.2 million units in the Fund; and (c) if any portion of the mandatorily exchangeable secured debt has not been repaid by June 30, 2011, approximately 3.65 million additional units in the Fund. If less than 100% approval of the Refinancing and Recapitalization is received by such date, it is anticipated that the Fund’s subsidiary Cinram International Inc. will proceed with the Refinancing and Recapitalization as a plan of arrangement (the “Plan”) in proceedings under the Canada Business Corporations Act. If requisite approval were obtained and court approval granted, the Plan (incorporating all elements of the Refinancing and Recapitalization) would bind all lenders.

Cinram will pursue opportunities to raise capital to repay the mandatorily exchangeable secured debt.

A summary of the key changes to Cinram’s capital structure resulting from these transactions is attached as a schedule to this press release.

Cinram retained Goldman, Sachs & Co. to act as its financial advisor to assist the Fund with the Refinancing and Recapitalization.

About Cinram
Cinram International Inc., an indirect, wholly-owned subsidiary of the Fund, 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 International Inc. 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 now also provides distribution and logistics services to the telecommunications industry in North America through its wireless subsidiaries. The Fund’s units are listed on the Toronto Stock Exchange under the symbol CRW.UN. For more information, visit our website at

Certain statements included in this release constitute “forward-looking statements” within the meaning of applicable securities laws. Such forward-looking statements include statements concerning the possible effects of the transactions described herein, and the likelihood of their successful completion. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund, or results of the multimedia duplication/ replication industry, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Such factors include, among others, the following: the Fund’s ability to retain major customers; general economic and business conditions, which will, among other things, impact the demand for the Fund’s products and services; multimedia replication industry conditions and capacity; the ability of the Fund to implement its business strategy; the Fund’s ability to invest successfully in new technologies and other factors which are described in the Fund’s filings with the securities commissions. These risks may affect the achievement of the expected results of the transactions described herein. There can be no assurance that the said transactions will be successfully completed or that, if completed, the expected consequences will result in whole or in part, and the deviations from such expectations may be material.


Key Terms of the Refinancing and Recapitalization

The following is a summary of the principal economic terms of the amended Credit Facility after giving effect to the Refinancing and Recapitalization:

Amount of Term Loan:
Approximately US$247 million

Revolving Commitments:
US$35 million as follows:
- US$14 million existing tranche (including outstanding L/Cs), which may be re-drawn for direct borrowings or replacement L/Cs to the extent any outstanding L/Cs are cancelled
- US$21 million “first out” revolver tranche, to be utilized only after $14 million tranche is fully drawn

Maturity Date:
December 31, 2013

Interest Rate on Term Loan:
- LIBOR + 800 bps cash pay, plus 100 bps paid in kind (“PIK”)
- payable quarterly
- 1.25% LIBOR floor
- additional interest accrues if, as a result of certain minimum liquidity provisions, Cinram defers principal amortization or excess cash flow sweep payments or pays interest-in-kind with respect to all or a portion of the outstanding Loans

Interest Rate on Revolver:
- US$14 million tranche – similar pricing to the Term Loan
- US$21 million tranche – LIBOR + 625 bps (LIBOR floor 1.25%)
- payable quarterly

Revolver Commitment Fee:
125 bps

Amortization of Term Loan:
1.25% of closing date amount per quarter beginning Q1 2011, increasing to 2.5% per quarter in Q3 2012 and beyond, subject to certain minimum liquidity provisions

The following is a summary of the principal economic terms of the Mandatorily Exchangeable Secured Debt:

Cinram International Inc. (“CII”) or an affiliate

US$90 million

Second lien on all Credit Facility collateral

15% per annum (quarterly compounded), PIK until maturity

December 31, 2011; mandatorily redeemable without fee or penalty with the net cash proceeds of any equity raise

Exchange if no Equity Raise:
At December 31, 2011, mandatorily exchanges into common interests of the Fund at the lesser of (i) $0.242 per unit, subject to customary adjustments, and (ii) the lowest price per unit at which any equity is raised on or before December 31, 2011

Treatment of Interest:
Paid in cash (i) with respect to all or any portion of the principal repaid prior to maturity or (ii) at maturity, subject to the company’s election not to pay interest in cash at maturity in certain circumstances, in which case, each Lender has the option to exchange its ratable share of capitalized and accrued interest to equity at the same price as principal or to retain a continuing second lien debt claim (at 15% PIK interest per annum) until December 31, 2013 (at which time the remaining balance shall be paid in cash)

The following is a summary of selected terms of the warrants:

Warrants to purchase 13 million units of the Fund

- 50% upon closing of the Refinancing and Recapitalization
- 10% one year after closing
- 15% two years after closing
- 25% three years after closing

The initial strike price is $1.10. The strike price will be recalculated upon any exchange of part or all of the mandatorily exchangeable secured debt or equity raise and will be set at the lowest of (i) $1.10, (ii) the lowest per unit price at which Cinram raises new equity on or before December 31, 2011, and (iii) the per unit price resulting from any exchange of the mandatorily exchangeable secured debt.