Recent talks between Apollo and Cerberus, which owns NewPage, about the papermaker’s debt were characterized in some media outlets as merger talks. Apollo has bought up a majority of a NewPage debt issue, giving it significant leverage over the largest maker of coated and supercalendered papers in the U.S.
“There are reports that Verso and NewPage have discussed combining is some way. I would be very surprised if this happened anytime soon,” Verle Sutton wrote in the February issue of The Reel Time Report (available only through subscription from Forestweb), published yesterday. “Combining a debt-laden company with a super-debt-laden company does not make sense for the debt-laden company. Verso needs to try to stay out of bankruptcy, not duplicate the results of the Abitibi and Bowater merger.”
Verle said Dead Tree Edition could quote him on the subject as long as his comments weren’t edited. I'm happy to oblige:
“Any agreement that Apollo and Cerberus might find attractive would almost certainly not be a good deal for other holders of NewPage and Verso debt. For example, if Apollo tries to convert its debt in NewPage to equity, it would strive for an equity position that would be disproportionate to the percentage of debt it controls; otherwise, it would not make sense for them. Why would the other lenders agree to that?”
“I always wish only the best for all of the paper companies and their customers, but I am not optimistic. Companies don’t usually get out from under such heavy debt — except through bankruptcy. The lenders may eventually agree to some kind of reorganization, but why should they…and why now? The lenders are receiving high interest payments, and, when the payments stop or the debt matures, they will own the company. Why trade some debt for equity now when they can have it all later?
“If NewPage does eventually move through Chapter 11, the company coming out of bankruptcy will be very powerful, and unburdened of significant debt. At that point, why would it agree to merge with Verso and get stuck with the latter’s debt? It would be like the current, nearly debt-free AbitibiBowater buying Catalyst and assuming another $700 million in debt. That is not going to happen.”
In late January, merger speculation was also pooh-poohed by securities analyst Phillip Wirtz of Odeon Capital Group LLC in comments to The Chronicle Herald of Halifax, NS for an article that is no longer available online. (Verso operates entirely in the U.S., and NewPage is mostly in the U.S., but as far as I can tell The Chronicle Herald is the only daily newspaper to have written about this story. Are there no newspapers in Dayton, Memphis, Wisconsin, or Maine?)
“I wouldn’t read too far into that,” Wirtz said of speculation about the supposed Apollo-Cerberus meeting.
For more information on NewPage's debt problems and the relationship, or lack thereof, between North America’s two largest producers of coated paper, see:
- NewPage Gets Some Breathing Room explains why the terms of a NewPage debt issue give Apollo so much leverage over the company.
- NewPage, Verso Owners Reportedly Discussing a Deal
- Is Bankruptcy Inevitable for NewPage? Still a valid question.