SFK Pulp Fund Completes Acquisition of AFRI Mills

Saint-Felicien, Quebec, Canada, 01 November 2006 -- /CNW Telbec/ -- SFK Pulp announced today that it has completed the acquisition of the American Fiber mill and the Great Lakes mill for a total purchase price of $156.1 million, subject to certain post-closing working capital adjustments. The two recycled bleached kraft (RBK) pulp mills were owned respectively, by American Fiber Resources, LLC, and Great Lakes Pulp Company. The purchase price excludes an expected investment in working capital of approximately $26.0 million.

"We are pleased to report today the successful closing and financing of the acquisition of the AFRI Mills," said declared André Bernier, president and chief executive officer of SFK Pulp. "This transaction is clearly in line with the growth strategy outlined to our unitholders and on which we have focused over the last two years in order to maintain our position as a specialized producer of market pulp," he said.

"The AFRI Mills have built a solid reputation as a market-leading source for one of the finest quality RBK pulp in the world, comparable in quality to bleached hardwood kraft pulp produced from virgin fiber. The addition of the AFRI Mills to our current operations will position SFK Pulp as the owner of a premier NBSK and RBK market pulp operation in North America," Bernier said.

The purchase price of the acquisition was paid with (i) $45.0 million from the public offering of 12,822,500 subscription receipts at a price of $4.05 each and of $51,750,000 aggregate principal amount of 7% convertible extendible unsecured subordinated debentures, both completed on 07 September 2006 (these amounts include the underwriters' over-allotment option which was fully exercised on 03 October 2006), and (ii) $111.1 million from the $200 million senior secured term facility made available to SFK Pulp by a syndicate of institutional investors pursuant to a credit agreement dated as of 30 October 2006 (the "new credit agreement").

SFK Pulp also used $48.0 million from the offering and $52.0 million from the term facility to reimburse its existing credit facilities. A $55 million senior secured revolving facility was also made available under the new credit agreement to SFK Pulp by a syndicate of Canadian financial institutions and one institutional investor (the "revolving facility"). The term facility has a term of six years and, commencing on the second quarter after the closing of the acquisition, will amortize at a rate of 1% per annum of the original amount of the term facility in quarterly instalments, with the balance due and payable at maturity. The revolving facility has a term of four years, subject to two possible one-year renewal options, and is subject to a borrowing base calculation. It will be used principally for general corporate purposes and is payable in full at maturity. The term facility and the revolving facility bear interest at market rates.

The term facility also provides for mandatory repayments equal to (i) 100% of the net proceeds of debt issuances by SFK Pulp in excess of the amount of permitted debt, (ii) 50% of the net proceeds of equity issuances by SFK Pulp when the relevant prescribed ratio of funded debt to EBITDA is exceeded, and (iii) starting from 31 December 2007, 50% or 25% of free cash flow of SFK Pulp, when the relevant prescribed ratio of funded debt to EBITDA is exceeded. During the five-year period commencing on the date of the first advance under the term facility, such mandatory repayments by SFK Pulp's Canadian borrower subsidiary may not exceed 25% of the principal amount of the term facility made available to such subsidiary on such date.

The new credit agreement contains standard restrictive covenants that restrict numerous aspects of the businesses of SFK Pulp. These covenants impose restrictions, among other things, on the ability of SFK Pulp to incur additional debt; grant liens; dispose of assets; consolidate, merge, or acquire other businesses; make capital expenditures; and amend or terminate material contracts.

In addition, the new credit agreement contains a covenant imposing a restriction on the ability of SFK Pulp to pay monthly cash distributions to its unit holders (i) if a default has occurred and is continuing, if an event of default has occurred, or if a default or an event of default would result from any such cash distribution, in each case under the new credit agreement; (ii) if, as a consequence of any such cash distribution, the aggregate amount of its cash and cash equivalents at the time of the declaration thereof would be less than $10.0 million; or (iii) if SFK Pulp does not have distributable cash, as defined under the new credit agreement, for such purposes.

Concurrently with the closing of the acquisition, holders of subscription receipts (SFK.R) automatically acquired, through the facilities of The Canadian Depositary for Securities Limited (CDS), without payment of any additional consideration or any further action, one unit of SFK Pulp (SFK.UN) for each subscription receipt held.

Holders of Subscription Receipts at the time of closing of the acquisition will also receive a distribution equivalent of $0.02 per receipt, representing the amount the holder would have received had such person held units on 29 September 2006, the record date for SFK Pulp's September distribution. As they are deemed to have become unit holders before the close of the market on 31 October 2006, being the record date for SFK Pulp's October distribution, holders of subscription receipts at the time of closing of the acquisition will be entitled to receive the $0.02 distribution per unit payable on 15 November 2006.

The transfer register for the subscription receipts closed at 5:00 p.m. (Montréal/Eastern time) on 31 October 2006. The subscription receipts will be delisted from the Toronto Stock Exchange (TSX), and the units issued pursuant to the subscription receipts will be available for trading on the TSX commencing at the opening of trading on 01 November 2006. As a result of the issuance of the units pursuant to the subscription receipts, there are now 72,072,500 units of SFK Pulp issued and outstanding.

As a result of the closing of the acquisition and pursuant to the terms of the debentures, the maturity date of the debentures has been automatically extended to 31 December 2011. The debentures are listed for trading on the TSX under the symbol SFK.DB.