Once the primary supplier of glossy paper to the likes of Time magazine, Verso Paper Corp. filed for bankruptcy reorganization Tuesday, seeking protection from creditors for a business that has been clobbered by market shifts and changing consumer habits.
The company, which operates a mill in Jay that employs about 550 people, filed reorganization papers in Delaware bankruptcy court. Verso is headquartered in Tennessee but incorporated in Delaware.
In a written statement, Verso said the filing is intended to allow it to restructure its debt, and the bankruptcy will “have virtually no impact on the day-to-day operations of the company.” President and CEO David J. Paterson said the decision was difficult but made easier by strong support from creditors.
“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,” Paterson said in a written statement.
In the bankruptcy filing, two Maine companies are listed among Verso’s 30 largest creditors. Catalyst Paper Operations Inc. of Rumford is owed $2.2 million and Hartt Transportation Systems Inc. of Bangor is owed $1.2 million.
The master list of creditors filed by Verso includes the names of 30,785 businesses and individuals to whom the company owes money.
Verso also filed motions Tuesday asking the court to let it continue paying taxes, critical vendors and employees during the bankruptcy proceedings. Another motion asks the court to prohibit any utility from discontinuing service to a Verso facility.
Twenty-six other companies affiliated with Verso are included as debtors in the bankruptcy proceeding, such as Verso Androscoggin LLC, Verso Maine Energy LLC, Bucksport Leasing LLC, NewPage Corp. and Rumford Paper Co.
SAGGING REVENUES, HEAVY DEBT
Like many paper companies, Verso Paper faces formidable challenges, both within its own corporate structure and the global industry as a whole. To stem the loss of revenue, it sold off its unprofitable Bucksport mill in 2014, eliminating 500 jobs. The move was part of a complicated $1.4 billion deal that involved the acquisition and then sale of the former NewPage mill in Rumford in January of last year. That mill is now owned by Canada-based Catalyst Paper.
At the conclusion of the deal, Verso had about $3.5 billion in annual sales and about 5,800 employees in eight mills across six states. In its bankruptcy filing, the company reported gross revenues of about $2.4 billion for the first three quarters of 2015.
The acquisition of NewPage was financed primarily through borrowing. On Jan. 14, the company notified federal securities regulators that is was exercising a five-day grace period on a payment due on a $731 million loan. The next day, it notified the Securities and Exchange Commission that is was exercising a 30-day grace period on interest payments due on $1.3 billion in secured notes.
Verso seeks creditor approval for a bankruptcy plan that would provide its creditors with equity shares in lieu of repaying the company’s debt, according to a release from the company. Verso is an affiliate of Apollo Global Management, a private equity firm based in New York City that purchased the papermaker from Memphis-based International Paper in 2006 for $1.4 billion.
Maine pulp and paper industry analyst Lloyd Irland said it’s unlikely that the creditors would be interested in being repaid with shares of Verso, a “penny stock” that no longer is traded on a major exchange.
“It was delisted because (shares) fell below a dollar,” said Irland, owner of The Irland Group. “Accepting shares in this company is the same as accepting nothing.”
HOPES FOR TURNAROUND DASHED
Irland said the problem for companies such as Verso is that no matter how well they are managed, plummeting demand for paper makes it extremely difficult for them to remain viable. He said Apollo made a serious error when it chose to buy the company.
“It’s probably going to be written up in the business schools as one of the worst investments ever made by one of these genius private equity firms,” he said.
Workers have been bracing for the news.
In November, CEO Paterson sent a letter to employees detailing the company’s ongoing struggles despite the acquisition of rival New Page. The letter was sent Nov. 16, the same day the company reported disappointing third-quarter financial results.
Paterson wrote that the company is facing “a perfect storm of external factors that negatively affect our liquidity and cash flows, including impending financial obligations, an accelerated and unprecedented decline in demand for our coated paper products, and a significant increase in foreign imports resulting from a strong U.S. dollar relative to foreign currencies.”
Paterson had hoped that combining with NewPage would better prepare Verso to compete in a global marketplace. However, the challenges persisted.
In its third-quarter financial results, the company reported that net sales had increased 123 percent from the third quarter of 2014, from $350 million to $782 million, a result of added volume from its acquisition of NewPage, but still showed a quarterly net loss of $111 million. In the 12 months ending Sept. 30, the company had lost $511 million, according to the company’s filing.
The market for the company’s coated paper, the glossy kind used for magazines and catalogs, is being squeezed on two sides: from falling demand and from increasing foreign imports, said Bill Cohen, Verso’s spokesman.
Cohen cited figures in November from the Pulp and Paper Products Council that reported North American demand for coated paper had fallen 5.6 percent since the third quarter of 2014, and that net foreign imports had increased 16.8 percent in the same period.
“The fact is we have more coming in and decreasing demand,” Cohen said.
In August of last year, Verso laid off 300 employees at its Jay mill, citing declining demand, energy costs and high property taxes. That reduced the workforce at the mill, which still operates three paper machines, to roughly 560 people. Verso also shuttered a mill in Kentucky.
The downsizing in Maine and Kentucky hit the company’s finances with $55 million in restructuring charges, including severance and benefit costs related to the layoffs at the mills.
In September, the New York Stock Exchange delisted Verso’s stock because of a precipitous drop in its value. The company is now traded in over-the-counter exchanges.
INDUSTRY IN TRANSITION, DISTRESS
Verso’s woes are reflected in other paper industry transitions. Unable to recover from a devastating boiler explosion in November 2013, the bankrupt Lincoln Paper and Tissue mill was purchased after a November 2015 auction. Wisconsin-based Expera Specialty Solutions intends to shutter its Old Town facility, once a major producer of pulp for mills across the country. Demolition of the Bucksport mill for scrap started in December.
The industry, which employed 18,000 in Maine at its peak in the 1960s, now employs just over 6,000.
The contraction reflects a shift by consumers, who now use electronic devices to retrieve information that once belonged to books, magazines and newspapers. It also has been hammered by foreign competition over the past decade as other countries captured more of the market of paper-based products, especially low-value goods like tissue and napkins.
The Professional Logging Contractors of Maine said Verso’s bankruptcy filing is a positive move if it allows the company to continue operating and emerge stronger from the process.
“While bankruptcy is not a word you like to hear in connection with a company as important to the Maine forest products economy as Verso, Maine loggers are encouraged that the company will continue to operate its remaining Maine mill as it seeks to restructure its finances,” the trade group’s executive director, Dana Doran, said in a written statement. “Verso is a valued partner for Maine loggers and we are hopeful that this process ends with a stronger company and our partnership can continue to grow.”
Staff Writer Edward D. Murphy contributed to this report.