SAF Saratoga Investment Corp

A judge Wednesday said Vertis Holdings Inc. (VRTH) can go forward with a $100 million equity committment from bondholders, a linchpin in the advertising company's bankruptcy plan.

Judge Allan L. Gropper of the U.S. Bankruptcy Court in Manhattan also approved the company's "backstopping" agreement, in which second-lien bondholders have committed to buy any unsold Vertis shares in the $100 million private placement.

Those 28 backstopping investors, including major equity and bondholder Avenue Capital Management, will split 10% of the new stock as a fee.

Vertis's plan calls for bondholders to swap their debt for equity and slash the direct-mail-and-insert advertiser's debt by 60%.

Baltimore-based Vertis filed for Chapter 11 protection last month with a plan that involves second-lien and payment-in-kind noteholders swapping their debt for equity in a restructured Vertis.

The company said at the time of its bankruptcy filing that it tried for months to reach an out-of-court restructuring, but didn't think it could get the 98% creditor participation level required under law.

On Wednesday, Vertis lawyer Kenneth S. Ziman of Skadden Arps Slate Meagher & Flom LLP told Gropper that creditors representing 99.98% of pre-bankruptcy Vertis support the backstopping agreement.

Vertis hopes to emerge from bankruptcy with $700 million less debt. The court has scheduled a hearing for Dec. 16 at which Gropper will decide whether to approve the plan, which would clear the way for an exit by the end of the month.

Marc Lasry's Avenue owns nearly 60% of Vertis's equity and is a major holder of the company's second-lien notes. Avenue gained the stock during Vertis's prior bankruptcy filing in 2008, as part of a plan to merge with American Color Graphics Inc.

General Electric Capital Corp. and Golden Gate Capital are providing Vertis with a $200 million debtor-in-possession loan. GE Capital, Morgan Stanley (MS) and Avenue have agreed to provide exit financing, the latter of which Gropper also approved Wednesday. Last month, he approved Vertis's request to tap a large chunk of the bankruptcy loan.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection)

-By Joseph Checkler; Dow Jones Newswires; 212-416-2152; joseph.checkler@dowjones.com

-Eric Morath contributed to this article.

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