Marcal Paper Mills Inc.'s recent entry into Chapter 11 could also mean the privately held consumer paper products company will see a takeout.

On Nov. 30, Elmwood Park, N.J.-based Marcal filed for bankruptcy protection on approximately $125 million in largely private debt. The manufacturer of paper towels, napkins and bath tissue, among other paper products, also has Economic Development Authority (EDA) financing debt. Marcal's lead counsel on the Chapter 11 proceedings, Michael Sirota, a bankruptcy partner at Cole Schotz Meisel Forman & Leonard P.A., said in terms of Marcal's liabilities, the EDA debt is "about as public as it gets."

The EDA portion, issued for waste paper recycling revenue bonds, has not been the focus of the case, said Sirota.

When asked if the company was looking for bidders, Sirota responded, "It's operating very nicely in the ordinary course, and it's hired an investment banking group to look at all of its options, including refinancing out the existing debt, joint venturing with a private equity participant and doing a stand-alone Chapter 11 plan with existing shareholders."

But, said Sirota, "There is no one of those options that's taking priority over the other. I think it's expected that the investment bankers will look at all options."

To that end, Marcal has retained the special situations group/SSG, a division of $22 billion market cap National City Corp. since August when Cleveland-based National acquired SSG Capital Advisors.

Scott Victor, senior managing director and co-head of SSG, said, "We are currently considering a DIP financing proposal from the existing lenders." He declined to name which parties, saying the discussions are with "one or more of the existing lenders."

Wachovia holds the senior debt, with pieces held by Cerberus Capital, Black Diamond, Orix Corp. and Highland Capital, said Victor.

SSG senior managing director Robert Smith is also working on the Marcal mandate.

Founded and controlled by the Marcalus family, Marcal generates about $300 million in annual revenue.

A recent consumer paper products deal involved private companies--Georgia-Pacific Corp.'s Fort James division acquired Insulair Inc., which manufactures paper cups, for $170 million. A spokeswoman for Atlanta-based Georgia-Pacific declined to provide further details about the Insulair deal or offer any other comments.

Additionally, when Mergers & Acquisitions Report inquired if Marcal has a time frame in mind for its investment banking review, Victor said, "No sense of timing. This will obviously go well into 2007. We'll see how the company performs." He added, "They have a tremendous brand in the tissue business, and we're going to see how the company operates in the ordinary course in 2007."

An external spokesman, retained by Marcal after it filed for bankruptcy, deferred to Sirota for all questions about the process.

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