Clearwater reports settlement agreement with Glitnir regarding disputed contracts and damage claims

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HALIFAX, Feb. 28, 2012 /CNW/ – (TSX: CLR CLR.DB.B CLR.DB.A):

Clearwater and Glitnir settle all outstanding claims.
Clearwater will realize a gain of approximately $12.4 million or approximately $0.24 per share in the fourth quarter of 2011 as a result of the settlement.
Today, Clearwater Seafoods Incorporated (“Clearwater”) reported that it has reached an agreement with Glitnir regarding disputed derivative contracts, interest rate swaps and damage claims.

BACKGROUND ON THE CONTRACTS AND DAMAGE CLAIMS

On October 7, 2008 the Icelandic Financial Services Authority (“FME”) took control of Glitnir and subsequently placed it into receivership. Prior to Glitnir’s receivership Clearwater Seafoods Limited Partnership (“CSLP”, a wholly owned subsidiary of Clearwater) had derivative contracts with Glitnir including foreign exchange contracts and cross currency and interest rate swaps.

During the course of refinancing debt facilities in June 2009, CSLP and Glitnir reached an agreement whereby all outstanding foreign exchange contracts were closed and the potential liability under these contracts was capped at $14.0 million plus interest. As of the third quarter of 2011, CSLP had included in current liabilities an estimated $16.5 million, including accrued interest, associated with these contracts.

CSLP also had a number of interest rate and cross currency swap contracts with Glitnir to hedge the changes in the Icelandic Consumer Price Index (“CPI”) and the ISK currency. As of the third quarter of 2011, CSLP had included in current liabilities an estimated $10.9 million associated with these contracts.

In the fourth quarter of 2009, CSLP commenced litigation with Glitnir in relation to damages from Glitnir’s failure to honor a term sheet for a proposed privatization in October 2008, the foreign exchange contracts and the cross currency and interest rate swaps.

Recently Clearwater and Glitnir entered into discussions and ultimately reached an agreement whereby both parties set aside all claims (the “Glitnir Settlement Transaction”).

DETAILS OF THE GLITNIR SETTLMENT TRANSACTION

The agreement reached with Glitnir provides for the settlement and release of all outstanding claims amoung CSLP, Clearwater Seafoods Income Fund (“the Fund”) and its successor Clearwater Seafoods Incorporated, and Glitnir in exchange for an immediate cash payment by Clearwater of Canadian $14.5 million.

Clearwater will fund the payment using Canadian $5 million funded from deposits that Clearwater had maintained for such purpose and had included in other long-term assets and a $9.5 million addition to Clearwater’s existing second lien term loan facility.

POSITIVE IMPACT ON FOURTH QUARTER OF 2011 AND FUTURE RESULTS

As a result of this settlement, Clearwater will record a gain of approximately Canadian $12.4 million or approximately $0.24 per share in the fourth quarter of 2011, being the difference between the $14.5 million settlement plus expenses and liabilities recorded at the end of the third quarter of 2011 for the exchange contracts and cross currency and interest rate swaps.

Ian Smith, CEO of Clearwater commented “this settlement removes uncertainty by bringing closure to a potentially lengthy legal proceeding. In addition, it allows us to simplify our balance sheet and when combined with our recent conversion from a trust to a corporation, provides us with a clean and easy to understand capital structure. ”

Mr. Smith continued “One of our key goals over the past year has been to focus on simplifying our capital structure. This is important as it makes it easier for investors and lenders to understand our structure and enables discussions to be focused on the performance of the underlying business which continues to be strong with growing sales and EBITDA and decreasing leverage.”

COMMENTARY REGARDING FORWARD-LOOKING STATEMENTS

This news release may contain forward-looking statements. Such statements involve known and unknown risks, uncertainties, and other factors outside management’s control including, but not limited to, total allowable catch levels, selling prices, weather, exchange rates, fuel and other input costs that could cause actual results to differ materially from those expressed in the forward-looking statements. Clearwater does not undertake any obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances other than as required under applicable securities laws.

About Clearwater

Clearwater is recognized for its consistent quality, wide diversity and reliable delivery of premium wild, eco-labelled seafood, including scallops, lobster, clams, coldwater shrimp, crab and groundfish.

Since its founding in 1976, Clearwater has invested in science, people, technology, resource ownership and resource management to sustain and grow its seafood resource. This commitment has allowed it to remain a leader in the global seafood market.