With concerns about cash flow and overall liquidity, struggling paper business Verso Corp. has hired PJT Partners LP and O'Melveny & Myers LLP as restructuring advisers, and warns that a bankruptcy filing is not out of the question.

The company's advisers are focused on the balance sheet, and Verso is also considering sales of certain mills to raise money. "Our potential restructuring could occur in a consensual, out-of-court manner or through a court-supervised Chapter 11 bankruptcy proceeding," Verso says in a Nov. 16 filing with the U.S. Securities and Exchange Commission.

The announcement came as Verso, a Memphis, Tennessee-based paper and pulp producer, announced significant sales increases. The company's net sales in the third quarter were up 123 percent, to $782 million, from $350 million in the third quarter of 2014. Operating income was also up to $23 million from $16 million for the third quarter of 2014, and adjusted Ebitda was $84 million, compared with $41 million from the third quarter of 2014, according to the SEC filing.

Verso warns that there is substantial doubt about its ability to continue as a going concern for the next 12 months because it may not have enough cash to fund upcoming obligations. Plus, subsidiary NewPage may end up violating a leverage covenant on a loan. If NewPage doesn't comply with the leverage ratio covenant, Verso can make capital contributions, but says it may not have the money to do that. And if it can't, the business will default. Verso acquired NewPage, which produces printing and specialty papers, in January.

"We continue to face increased competition from electronic substation for print and producers, but as a larger, more efficient organization with a sustainable capital structure, we will be better positioned to compete effectively and deliver solid results despite the industry's continuing challenges," Verso CEO David Paterson said at the time of the acquisition.

Since then, Verso has struggled. The company, formerly listed on the New York Stock Exchange, is now listed on the OTC markets because the its market capitalization dropped below $75 million.

Verso says it has already started restructuring talks with certain creditors.

For the previous edition of Turnaround Tuesday, see Arch Coal is Negotiating with Creditors, But May End Up in Bankruptcy Anyway. For a list of struggling companies, see Mergers & Acquisitions' Distressed Company Watch List

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