A decline in demand for coated paper has pulped private equity-backed NewPage Corp.
The largest maker of coated paper in North America filed for Chapter 11 on Wednesday in the U.S. Bankruptcy Court for the District of Delaware in Wilmington with 13 affiliates. The Miamisburg, Ohio, company, 80% owned by Cerberus Capital Management LP, also filed for protection under the Companies' Creditors Arrangement Act in the Supreme Court of Nova Scotia.
"The current unrest in the global economy and the preceding 'great recession' have resulted in a general decrease in both advertising spending and magazine/catalog circulation, as well as an overall decline in the demand for coated paper," court papers said.
The rising cost of raw materials has also hurt NewPage, which attempted to restructure its debt out of court but could not.
NewPage owes $131 million under a prepetition revolving credit facility from Wells Fargo Capital Finance LLC, Goldman Sachs Credit Partners LP, UBS Securities LLC, Barclays Bank plc, Wachovia Bank NA and Bank of America NA.
The debtor also has $1.77 billion in 11.38% senior first-lien notes due Dec. 31, 2014; $806 million in 10% senior second-lien notes due May 1, 2012; and $225 million in second-lien floating-rate notes. In addition, NewPage has $200 million in 12% senior unsecured subordinated notes due May 1, 2013, and as of June 30 it owed $498 million on two series of senior unsecured pay-in-kind notes.
NewPage will fund its reorganization with cash collateral and a $600 million debtor-in-possession financing, the biggest of the year. The loan from J.P. Morgan Securities LLC, Barclays and Wells Fargo consists of a $350 million revolver and a $250 million term loan. The all-new-money DIP will repay the prepetition revolver.
Chief Judge Kevin Gross is set on Thursday to consider first-day motions, including interim access to $495 million of the DIP.
Given all the constituencies involved, NewPage's bankruptcy proceedings could be rancorous, especially because, as independent research provider CreditSights reported, Cerberus and Oaktree Capital Management LP have been buying first-lien debt through the summer -- foreshadowing a possible fight for an equity stake in the surviving entity. Apollo Global Management LLC and Avenue Capital Group LLC have also accumulated more than half the second-lien notes, with the intention of taking over a reorganized NewPage.
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