December 11, 2020 – The Debtors filed an Amended Joint Chapter 11 Plan of Liquidation (the “Revised Plan”) and a related Disclosure Statement (the “Revised Disclosure Statement”) with each attaching a blackline showing changes from the version filed on November 20, 2020 [Docket Nos. 1027 and 1028, respectively].

On April 13, 2020,  the Debtors, a leading print and digital publisher, filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York noting estimated assets of $1.649bn and estimated liabilities between $1.721bn. The filing was precipitated by the termination of a proposed merger with Quad Graphics after that merger was challenged by the DoJ on antitrust grounds (see further below).

On October 7, 2020, the Court hearing the LSC Communications cases has issued an order approving the sale of substantially all of the Debtors' assets to an affiliate of Atlas Holdings LLC ("Atlas") with that sale closing on December 4th and the majority of the sale's cash proceeds used to pay off in full the Debtors' prepetition revolving credit obligations ($253.0mn) and fund the Debtors' wind-down ($88.7mn), see further below.

The following is an amended summary of classes, claims, voting rights and expected recoveries showing highlighted changes (defined terms are as defined in the Plan and/or Disclosure Statement; see also the Liquidation Analysis below):

• Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $[•] and the estimated recovery is 100%.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $[•] and the estimated recovery is 100%.
• Class 3 (“Junior Remaining Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $630,586,543.26 (representing (i) $203,433,720.73 in respect of the aggregate outstanding principal amount of the indebtedness under the Term Loan Facility, plus accrued and unpaid interest thereon at the non-default contractual rate up to and including the Petition Date plus (ii) $407,051,711.94 in respect of the aggregate principal amount outstanding under the Senior Secured Notes, plus accrued and unpaid interest thereon at the non-default contractual rate up to and including the Petition Date.) and the estimated recovery Plan is 15.9%. Each holder shall receive its Pro Rata share of the Junior Remaining Claim Distribution Pool, subject to the Unsecured Claim Pool.

FN: Estimated recoveries for Class 3 include the distribution of the Available Amount (as defined herein) to Holders of Junior Remaining Claims pursuant to the CBSA (as defined herein), as further described in the Liquidation Analysis (as defined herein). If the distribution of the Available Amount were excluded, the estimated recovery to Holders of Junior Remaining Claims under the Plan would be [6.7]%, and in a chapter 7 liquidation scenario would be [6.4]%.

• Class 4 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $297,816,920.36 and the estimated recovery is 2.4%. Each holder shall receive (i) its Pro Rata share of the Unsecured Claim Pool and (ii) its Pro Rata share of the Litigation Trust Interests.
• Class 5 (“Intercompany Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery for Plan and Liquidation is 0%.
• Class 6 (“Intercompany Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is 0%.
• Class 7 (“Subordinated Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is 0%.
• Class 8 (“Equity Interests in LSC”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is 0%.

The Disclosure Statement attached the following documents [Docket No. 970]:

• Appendix A: Plan of Liquidation
• Appendix B: Solicitation Procedures Order (to be filed)
• Appendix C: Liquidation Analysis (to be filed)

Key Dates:

• Plan Supplement Filing Deadline: January 19, 2021
• Voting Deadline: January 26, 2021
• Confirmation Objection Deadline: January 26, 2021
• Confirmation Hearing: February 4, 2021

Asset Sale

On October 7, 2020, the Court hearing the LSC Communications cases has issued an order approving the sale of substantially all of the Debtors' assets to ACR III Libra Holdings (“Buyer”) [Docket No. 876]. 

The Buyer is an affiliate of Atlas Holdings LLC ("Atlas") and the asset purchase agreement (the "APA") memorializing the terms of the purchase is attached to the order at Exhibit A. The purchase price was subject to a number of adjustments, but was based on an initial credit bid of $63,437,000 and cash that is capped at "Enterprise Value" ($440.0mn, less a number of adjustments reflecting cure costs, expenses, working capital, taxes, etc.). The cash element includes a $37.0mn deposit and an anticipated $274.4mn closing payment, with that cash used, inter alia, to pay off in full the Debtors' prepetition revolving credit obligations ($253.0mn) and fund the debtors wind-down ($88.7mn).

In a press release announcing the Court's approval of the sale, the Debtors stated that: "an affiliate of Atlas Holdings LLC ('Atlas') with the support of certain of LSC’s secured creditors (the 'Creditor Group'), will acquire substantially all of the Company’s assets. The transaction remains subject to customary closing conditions, including regulatory approvals.”

The sale closed on December 4, 2020.

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Coxhead Declaration”), Andrew Coxhead, the Debtors' Chief Financial Officer, detailed the events leading to LSC’s Chapter 11 filing. The Coxhead Declaration states: "Although the Company is a market leader in the printing and printing-related services industries, the Company’s product and service offerings have been adversely impacted by a number of long-term economic trends. Digital migration has substantially impacted print production volume, in particular with respect to printed magazines as advertising spending continues to move away from print to electronic media. Catalogs have experienced volume reductions as retailers and direct marketers allocate more of their spending to online advertising and marketing campaigns and some traditional retailers and director marketers go out of business in the face of increased competition from online retailers. The Company saw an unprecedented drop in demand for magazines and catalogs in 2019, with the faster pace of decline in demand primarily due to the accelerating movement from printed platforms to digital Demand for printed educational textbooks within the college market has been adversely impacted by electronic substitution and other trends such as textbook rental programs and free open source e-textbooks. The K-12 educational sector has seen an increased focus on e-textbooks and e-learning programs, but there has been inconsistent adoption of these new technologies across school systems. Consumer demand for e-books in trade and mass market has impacted overall print book volume, although e-book adoption rates have stabilized and industry-wide print book volume has been growing in recent years. Electronic communication and transaction technology has also continued to drive electronic substitution in directory printing, in part driven by cost pressures at key customers and a migration of advertising spend away from print. 

Tight labor markets and increased raw material prices as ongoing trends have also significantly impacted the Company’s operating margins in the last several years. 

On October 30, 2018, the Company entered into an Agreement and Plan of Merger (the 'Merger Agreement'), by and among Quad/Graphics, Inc. ('Quad'), QLC Merger Sub, Inc. and LSC, pursuant to which, subject to the satisfaction or waiver of certain conditions, LSC would be merged with QLC Merger Sub, Inc., and become a wholly-owned subsidiary of Quad. 

During the pendency of the merger transaction, LSC was prohibited under the Merger Agreement from implementing certain plant consolidation and footprint optimization steps identified in a comprehensive review of the business….Additionally, customer uncertainty during the pendency of the merger made it difficult to attract new business, and certain customers chose not to renew contracts in part due to the expected merger with Quad. Finally, the Company faced challenges in attracting and retaining employees, who were concerned about how the merger would affect their future employment. 

On June 20, 2019, the U.S. Department of Justice ('DOJ') , after a seven month exhaustive review of the merger, filed a civil antitrust lawsuit in Chicago under Section 7 of the Clayton Act seeking to block the proposed merger. The lawsuit was filed after the parties were unable to alleviate the DOJ’s concerns about the competitive effects of the merger, following completion of an expensive and time-consuming Second Request review process, and after intensive efforts to reach a negotiated settlement with the DOJ failed.

On July 22, 2019, after the DOJ sued to block the merger, Quad and LSC entered into a letter agreement, pursuant to which the parties agreed to terminate the Merger Agreement. 

Following the termination of the Quad merger and exacerbating ongoing declines in the Magazine and Catalogs segment, the Company experienced a significant decline in book sales in the second half of 2019, with revenues falling by over 20% year-over-year in the fourth quarter of 2019 alone. This decline was largely attributable to higher inventory levels for existing education customers, driven by orders placed late 2018 and early 2019 in anticipation of capacity constraints, as well shifting consumer preferences for higher education course materials and declines in sales of religious volumes. The Book segment, as well as the Magazine and Catalogs segment, was further impacted by a declining market price for paper by-products, which the Company normally sells for resale to Chinese purchasers but has seen a significant decrease in market demand due to the ongoing trade conflict between the United States and China."

Prepetition Indebtedness

As of the Petition date, the Debtors’ funded debt consisted of approximately: (i) $521.632mn in total principal amount outstanding under the Prepetition Credit Agreement, comprised of approximately (a) $249.0mn in revolving credit obligations (the “Revolving Credit Obligations”), (b) $50.757mn in outstanding letter of credit obligations (the “LC Obligations”), and (c) $221.875mn in term loan obligations (the “Term Loan Obligations”), and (ii) $450.0mn in secured notes outstanding under the Prepetition Indenture.

Liquidation Analysis (see Appendix C of the Disclosure Statement [Docket No. 1028] for notes)

About the Debtors

The Debtors describe themselves as follows: "With a rich history of industry experience, innovative solutions and service reliability, LSC Communications is a global leader in print and digital media solutions. Our traditional and digital print-related services and office products serve the needs of publishers, merchandisers and retailers around the world. With advanced technology and a consultative approach, our supply chain solutions meet the needs of each business by getting their content into the right hands as efficiently as possible."

LSC was formed on October 1, 2016 when it was spun-off from RRD, as part of a separation of RRD into three separate and independent publicly-traded companies. Prior to its suspension from trading in December 2019, LSC traded on the New York Stock Exchange under the ticker “LKSD.” It now trades on the OTCQX Best Market under the same ticker. 8.The Company has offices, plants and other facilities in 28 states, as well as operations in Mexico, Canada and the United Kingdom. The Company currently has approximately 19,500 total employees worldwide, of which approximately 15,809 employees are located in the United States.

About Atlas Holdings: Headquartered in Greenwich, Connecticut and founded in 2002, Atlas and its affiliates own and operate 21 platform companies, which employ approximately 22,000 associates at more than 200 facilities worldwide. Atlas operates in sectors such as aluminum processing, automotive, building materials, capital equipment, construction services, food manufacturing and distribution, packaging, power generation, pulp and paper, supply chain management and wood products. Atlas’ companies together generate more than $6 billion in revenues annually.

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