Verso files for bankruptcy for debt restructuring, operations to continue
Verso Corporation, which operates the Stevens Point and Wisconsin Rapids paper mills, announced Tuesday, Jan. 26, the company and its subsidiaries have filed voluntary bankruptcy petitions with the United States Bankruptcy Court in the District of Delaware to reorganize under Chapter 11 of the U.S. Bankruptcy Code.
Verso’s board of directors authorized the filing of the Chapter 11 cases to facilitate a debt restructuring necessary to strengthen the company’s balance sheet and to “position Verso for long-term success.”
According to the company’s announcement, Verso executives expect the bankruptcy filing will have virtually no impact on the day-to-day operations of the company.
“I’ve been in contact with the mill manager, and the bankruptcy filing is really probably more of a debt restructuring,” said Stevens Point Mayor Mike Wiza. “I would leave all the important questions to Verso, but I’m confident after my discussion with the mill manager and representatives of Verso that I don’t see any potential immediate threat for the Stevens Point employees or the mill.
“I’ve been assured the mill is going to continue operation through the bankruptcy and restructuring process,” Wiza said.
“While filing for Chapter 11 protection was a difficult decision, we are pleased that we enter this process with strong creditor support,” said David Paterson, Verso president and CEO. “We have worked together with a broad spectrum of financial creditors to develop a restructuring plan to eliminate $2.4 billion of our outstanding debt and to exit the Chapter 11 process in a short time frame.”
The expected agreement on terms for a plan of reorganization is with creditors holding at least a majority in principal amount of most classes of funded debt of Verso and its subsidiaries. Verso executives said they anticipate the plan of reorganization would result in the holders of its funded debt receiving equity of Verso in exchange for their claims after finalizing agreed-upon terms.
Verso said it expects to reach an agreement with its creditors to a bankruptcy-financing package of $600 million in Debtor in Possession (DIP) financing to support continued day-to-day operations.
Verso, based in Memphis, Tenn., said it will seek immediate relief from the bankruptcy court through the filing of customary first-day motions that will allow the company to transition its business into Chapter 11, including granting the authority to pay pre-petition wages, salaries and benefits and to honor customer programs.
“Since Verso acquired NewPage Holdings Inc. in January 2015, a confluence of external factors, including an accelerated and unprecedented decline in demand for our products, a significant increase in foreign imports resulting from a strong U.S. dollar relative to foreign currencies, and Verso’s impending financial obligations made it apparent that action was needed,” said Paterson.
“Verso chose to take this proactive step with the firm belief that our company will emerge from the Chapter 11 process as a stronger company that is positioned to compete and win, even as challenges in the overall economic environment continue,” he said. “Verso intends to operate our business as usual.”
“I’ve assured (Verso) that Stevens Point and Portage County, along with the rest of the community, stand ready to help in any way we can,” Wiza said. “While it’s not the largest employer in the city, it’s still a very important industry and if there’s anything the city can do to assist during their restructuring period, we stand ready to do so.”
The process of restructuring debt through bankruptcy is nothing new for the Stevens Point paper mill. In 2011, NewPage filed for Chapter 11 bankruptcy protections to restructure its debt.
In fact, the process was very similar then. George F. Martin, NewPage’s former president and CEO, said in 2011, “We expect to continue to run safe and efficient operations, be candid with all of our stakeholders and act as a responsible community member both during and after our financial restructuring.”
NewPage also enlisted J.P. Morgan for the exact same amount, $600 million, in DIP financing to ensure it could continue operations unhindered.
Additionally, the plan to potentially pursue debt restructuring was alluded to in a financial report from Verso in November of 2015.
The report said, “Based on Verso’s current liquidity position and our projections of operating results and cash flows for the remainder of 2015 and 2016, Verso officials said they anticipate that the company will not have sufficient resources to fund its most significant future cash obligations. As a result of cash flow and liquidity concerns, Verso has begun evaluating potential restructuring alternatives.”
Verso then hired PJT Partners L.P., an international financial advising company, to provide the Verso restructuring and transactional services and O’Melveny & Myers LLP to help with restructuring legalities and assistance.
“We have begun discussions with certain of our creditor constituencies to explore potential restructuring alternatives. We also are exploring opportunities to raise funds through potential sales of certain of our mills and related facilities, which may include the Stevens Point, Androscoggin and Duluth mills, our recently idled Wickliffe mill and the hydroelectric generation facilities associated with our Androscoggin mill,” the company said in a press release at the time.
“Our potential restructuring could occur in a consensual, out-of-court manner or through a court-supervised Chapter 11 bankruptcy proceeding. While we intend to actively pursue a potential restructuring and potential asset sales, there can be no assurance that any of these activities will occur on terms acceptable to us or at all,” the November release said.