Today, Reddy Ice (RDDY or "the Company") filed for bankruptcy in the Northern District of Texas (Dallas). It was revealed in the press release that the company had secured a $70M DIP and $50M in exit financing with a plan supported by "the majority of the principal amount of First Lien Notes, Second Lien Notes, and Discount Notes." The docket can be found here: Reddy Ice Docket. For reference, at the close, Reddy Ice's 11.25% were trading 91-92 (with accrued) and the 13.25% were trading at 15-17 (flat).



The company has filed its Plan of Reorg and Disclosure Statement. But first, let's take a peak at the Declaration of Steve Janusek, CFO of Reddy Ice, in support of bankruptcy petition and first day motions (Docket #27). Reddy Ice is the largest manufacturer and distributor of packaged ice in the United States. They are the ones that make and sell the bags of ice at super markets and convenience stores. In 2011, the Company sold 1.7 million tons of ice with a particular geographic focus in the southern United States (this is important for reasons to come later).



The filings lays out the company's capital structure, as of 3/31/2012, which I've laid out below:







In addition to addressing the Company’s declining EBITDA and current debt, the Restructuring is also intended to provide the Company with the opportunity to pursue a strategic acquisition (the “Strategic Acquisition”) of all or substantially all of the businesses and assets of Arctic Glacier Income Fund and its subsidiaries (“Arctic”). As is the case with the Company’s business, Arctic has encountered financial difficulties due to adverse trends in our industry in recent years. On February 22, 2012, Arctic filed for protection under the Companies’ Creditors Arrangement Act in Canada and Chapter 15 of the Bankruptcy Code in the United States. Arctic has initiated a Sale and Investor Solicitation Process (“SISP”). The purpose of the SISP is to seek sale proposals and investment proposals from qualified bidders and to implement one or a combination of them in respect of Arctic’s property and business.

On March 28, 2012, the Company submitted a non-binding letter of intent to Arctic regarding participation in the SISP. The letter of intent contemplates the Company’s acquisition of substantially all of Arctic’s business and assets. On April 5, 2012, the Company was advised by the financial adviser to Arctic that the Company has been approved to move to phase 2 of the SISP. The successful bidder will be selected at the end of phase 2 of the SISP. The Company’s interest in Arctic remains subject to, among other things, completion of due diligence, negotiation of acceptable transaction documents, and receipt of sufficient

commitments for debt and equity financing for the acquisition. Centerbridge has indicated its interest in providing the entire amount of the equity financing for the Arctic acquisition.





Assuming a fully drawn revolver, the Second Liens at 16 cents on the dollar is creating Reddy Ice at somewhere around $375M of value ($372 - cash on BS + rights offering). At $45M of EBITDA, this translates into a multiple of 8.5x. Projections show 2012E EBITDA at $57.2M or 6.5x. In the valuation analysis in the Disclosure Statement:

"Reddy Holdings and Reddy Corp have been advised by Jefferies & Company, Inc. (“Jefferies”) with respect to the estimated value of Reddy Corp’s operations on a going-concern basis (the “Enterprise Value”). Jefferies has concluded that the Enterprise Value of Reddy Holdings and Reddy Corp, as of the assumed effective date of March 31, 2012 (as used in this Appendix E, the “Effective Date”), will range from approximately $382 million to approximately $434 million, with a midpoint of approximately $408 million."

Reddy can pay a VERY high multiple for this business for the mere fact of the amount of synergies combining the two entities would entail. The amount of coverage the combined entity would have would be unparalleled. And we know that when AGUNF was marketed a few years ago, there were MANY bidders for the asset. The forecasted DIP draw of $42M: This business burns a ton of cash in the 1st and 2nd quarter of the year and generates a ton of cash in the 2nd half of the year. Just by cutting the DIP draw down to $20M gets your recovery at 8.5x to 26 cents a unit. Further the company has been WAY under budget in terms of DIP draws since the filing.

So I am long (and have been since the filing). To me the biggest risk here is the presence of West Face as senior secured lenders. For those not in the distressed world, West Face are amazing investors that I frankly am afraid just want this thing for themselves. If they were not involved, I would make this a much larger position.





I'll keep everyone updated on both the Reddy Ice and AGUNF bankruptcy proceedings as they play out.





Please note: That according to Docket 21: "As of the Petition Date, the Company owed approximately $50 million plus interest, fees and expenses, and had no availability, under the Prepetition Credit Agreement."The Company, according to the filing, began discussions in 2011 to explore alternatives to address its capital structure with an informal group of First and Second Lien note holders including Centerbridge. This is where things get interesting:Arctic Glacier (symbol: AGUNF) bankruptcy proceedings in Canada can be found here: Arctic Glacier CCAA Proceedings . For full disclosure, I am long AGUNF and I will explain why shortly.The rest of the support filing goes on to talk about the proposed restructuring which is highly dependent on whether Arctic Glacier is purchased. For example, if AGUNF is acquired, Reddy can issue pari first lien debt to finance the acquisition. If it isn't Centerbridge will convert $68.2M of First Lien notes into preferred stock of Reddy Holdings with a liquidation preference of $75M. In addition, Reddy stock holders are getting a 12 cent distribution with an additional 5 cents if AGUNF is acquired.According to the concurrently 4Q financial release, FY 2011 Adjusted EBITDA was $45M down from $51.8M last year. Further, in a Reg FD filing, the Company notes they did $103M of EBITDA in 2006:So we are definitely close here and if anything are being conservative. What does this mean for the value of AGUNF? Assuming they pay 8.5x, or similar comp to what Reddy is trading for, the value is 19 cents per unit:But, what I think people are missing here is two fold: