Verso

Not only would paper producer Verso Corp.’s expected bankruptcy filing be the largest in its sector since the 2011 NewPage Corp. filing, its debt holders could also be left with “weak recoveries”, Fitch Ratings said Wednesday. Verso warned of a potential bankruptcy in November 2015.

Memphis-based Verso and NewPage have ties to each other. In early 2015, Verso acquired Miamisburg, Ohio-based NewPage for $1.4 billion.

Worth mentioning, NewPage completed its financial restructuring in 2012. The company’s owner appears to be headed down the same path.

Last week, Verso opted to delay an interest payment for two of its debt issues, one of which originated from subsidiary NewPage.

In January 2016, NewPage announced it was exercising the grace period for its $731 million floating rate senior secured term loan, according toan SEC filing. The very next day, Verso said it would also be using the grace period to stall on making an interest payment to holders of its 11.75% senior secured bond due 2019 issued via subsidiary Verso Paper.

The grace period buys the company an additional 30 days to make the payments.

Verso has been grappling with several issues, some of which are a recurrent theme for its sector and some of which are specific to the company, Fitch said earlier in 2016.

“Verso has been struggling from a heavy debt load, weak performance at some mills and a secular decline in market demand for coated papers that is pressuring cash flows,” the rating said in a Jan. 20 report. “….Verso has been exploring potential debt restructuring alternatives with a restructuring advisor and holding creditor discussions to address its cash flow and liquidity concerns.

Meanwhile, Verso’s debt,  totaling $2.7 billion, would push up Fitch’s mid-January trailing 12-month junk bond default rate to 3.7% from the 3.4% recorded at the end of 2015. Also, the rating agency does not see investors faring particularly well if the company does file Chapter 11 or does an exchange for its current debt.

The company’s 11.75% notes have been receiving bids in the $0.15-$0.18 range; its unsecured bonds have been offered “just over a penny on the dollar”, Fitch said. Also, the loan has been bid at $0.36.

“Low bid prices on Verso Holding's unsecured bond issues indicate the market's expectations of weak recoveries on their claims in a bankruptcy or distressed debt exchange restructuring,” Fitch noted.

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