VANCOUVER - After months of being hammered by the slowdown in U.S. housing construction, Ainsworth Lumber Co. Ltd. (TSX:ANS) announced a recapitalization plan Tuesday that hands nearly all of the majority family owned and run company over to debtholders.

The Vancouver-based company, which is 58-per-cent owned by members of the founding Ainsworth family, said its board and certain major financial creditors negotiated the deal that would see debtholders own 96 per cent of the forestry products firm.

"The management and board of directors of the company believe that, in view of the challenges and risks to the company's ongoing viability created by the current oriented strand board market and the company's existing capital structure, the recapitalization is the best alternative available to the company and its lenders, noteholders, shareholders and other stakeholders," Ainsworth said in a statement.

The plan also calls for appointment of a new board of directors and management team.

Half of the current 10-member board is made up of Ainsworth family members. They also hold roles of chairman, chief executive, president and chief operating officer and executive vice-president at the company, which was founded by David Ainsworth in 1950.

Ainsworth owns one mill in each of B.C., Alberta and Ontario and three in Minnesota. It also owns 50 per cent of a mill in Alberta. Privately held Grant Forest Products, which owns a 34 per cent stake in Ainsworth, owns the other half of the Alberta mill.

Bruce Rose, general manager of corporate planning at Ainsworth, said the makeup of the new management team and whether it includes any of the same members will be up to the new owners of the company and the board they appoint.

The largest debtholders are HBK Master Fund L.P., Tricap Partners II L.P and Barclays Bank PLC.

Ainsworth said there will be "consulting and severance arrangements with certain members of management."

Based on Monday's closing stock price, Ainsworth's shares were collectively worth $40.3 million before the announcement. The stock was halted at $2.90, up 15 cents.

Ainsworth said its plan has the support of noteholders representing US$655 million of the principal, or more than 80 per cent of the total. In addition, the holders of a majority of the common shares and a majority of its 2007 secured term loan facility are on side.

Rose said plan was much needed in the current business environment, which has been hurt by the slumping U.S. housing sector and the soaring Canadian dollar.

"With the debt burden and the interest expense and other things, there needs to be some form of restructuring. This alternative appeared to be the best alternative to support the viability of the company," Rose said.

The plans sees the company's $823.5 million in unsecured notes exchanged for equity and US$150 million of new unsecured notes due 2015.

Current shareholders would collectively own four per cent of the company's common shares and receive warrants entitling them to additional shares if the company's market capitalization exceeds US$1.2 billion within four years.

In March, the company failed in a previous bid to refinance the debt by exchanging a series of older unsecured bonds with new secured ones. It announced last month that it was exploring further strategic alternatives.

Provided the latest plan gets the approval of two-thirds of votes cast by common shareholders, and court approval, Ainsworth said it hopes the recapitalization plan will be completed by July 30.

In its first quarter ended March 31, Ainsworth lost $88.2 million or $6.02 per share as sales dropped sharply and the company took a $36.1-million unrealized foreign exchange loss on long-term debt.

The loss compared with a loss of $22.8 million or $1.55 per share a year ago.

Quarterly revenue was $88.5 million, down from $135 million.

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