Mercer Files Chapter 11, Leaving Shareholders About 8.5% of New Stock
Mercer International filed a prepackaged Chapter 11 case in Texas to convert about $1.1 billion of notes into equity. What changes for each group.
Mercer International Inc., the Canadian pulp manufacturer, has filed for Chapter 11 bankruptcy protection in a prepackaged case meant to convert about $1.1 billion of its senior notes into equity and raise about $400 million of new money, according to Financier Worldwide. The company and its unit Mercer International (Texas) LLC filed in the US Bankruptcy Court for the Southern District of Texas.
The deal hands most of the reorganized company to its bondholders. Existing shareholders are set to keep about 8.5 percent of the new common stock and 3.5 percent of the new convertible preferred stock.
How the debt swap works
A prepackaged Chapter 11 is a case in which the company lines up creditor support for its plan before filing. Mercer said holders of more than 87 percent of the principal amount of its senior notes back the plan, along with holders of a majority of its common shares.
Under the agreement, roughly $1.1 billion of senior notes will be exchanged for equity. Mercer said that cuts its existing senior note debt by about 88 percent and removes about $96 million a year in cash interest on those notes. After the company emerges, it expects only minimal cash interest payments for the first two years, and no bonds will come due until 2031.
The $400 million in new money will come through a rights offering of new senior secured notes. A rights offering lets existing investors buy new securities on set terms. Certain members of an ad hoc group of noteholders have agreed to backstop 100 percent of it, meaning they will buy any notes others do not take up. Mercer said the cash will support its operations after the restructuring.
What it means for shareholders, workers and customers
For current shareholders, the plan means a much smaller stake in the company. Their holdings will be diluted to about 8.5 percent of the new common stock plus 3.5 percent of the new convertible preferred shares, while noteholders receive equity in exchange for their notes.
The company described the filing as non-operating, meaning its businesses stay outside the bankruptcy and keep running normally. Mercer said customers will continue to be served, vendors and unsecured claims will be paid in the ordinary course, and employee wages and benefits will continue without interruption.
Chief executive Juan Carlos Bueno said the restructuring affects only the balance sheet and that the company’s mills in Germany, Canada and the United States are running as usual. He called the deal “a decisive step forward for Mercer” and said the new capital gives it liquidity to deal with conditions in the pulp and lumber markets and geopolitical pressures. Mercer makes pulp, lumber and mass timber products.
What happens next
The recapitalization still has to meet customary conditions, including any required regulatory approvals. Mercer said it expects to finish the expedited Chapter 11 process by the end of 2026.
Source: Financier Worldwide
