Seven Losers and Four Winners in the NewPage Bankruptcy

The recent bankruptcy court filings by NewPage have been blessings for some and curses for others. Here's a look at the scorecard two weeks after the big U.S. paper company went Chapter 11:

LOSERS
Loser #1) Port Hawkesbury employees: NewPage has basically deep-sixed its money-losing Canadian mill, walking away from severance obligations and an underfunded pension plan, not using any of its debtor-in-possession funds to keep the mill running, and leaving many suppliers holding the bag. NewPage has put the mill up for sale but also revealed that it loses $4 million per month on the operation. Unless the muscle-bound Canadian dollar suddenly goes into the tank, a new owner won’t be able to make a go of the mill unless it can avoid NewPage’s pension obligations, reduce labor costs, and perhaps keep part of the operation (two paper machines and a pulp mill) idle.

Loser #2) Nova Scotia: It’s not just the mill’s employees who are suffering; the whole province seems to be getting sucked into the Port Hawkesbury vortex. The provincial government is shelling out $15 million to prop up logging operations that are getting stiffed by NewPage, the power company (owed nearly $10 million) says the loss of such a big customer will force it to raise rates for everyone else, and rail service to part of the province may no longer be viable.

Loser #3) Paper buyers: Spot deals for supercalendered paper disappeared almost overnight when the Port Hawkesbury closure was announced. Contract prices for SCA and the closely linked lightweight coated (LWC) papers are also rising despite declining demand.

Loser #4) Bondholders: Owners of the junkiest of NewPage bonds will probably receive nothing, and even owners of more senior bonds who expected to come out OK might have to accept some equity in a restructured NewPage in lieu of cash.

Loser #5) Suppliers: At least 25 suppliers of such items as chemicals, energy, and timber to the American arm of NewPage got stuck holding more than $1 million each in accounts receivable when the company went Chapter 11. Their prospects are better than those that supplied Port Hawkesbury, but most are unlikely to receive full compensation.

Loser #6) Cerberus: The folks who brought us the Chrysler and GMAC bankruptcies can now add another turkey to their resumes. The Chapter 11 filing wipes out the big hedge fund's stake in NewPage.Cerberus now seems to be moving more toward simply investing in companies rather than trying to buy and run them.

Loser #7) StoraEnso: With NewPage defaulting on the lease of one of its Port Hawkesbury paper machines, StoraEnso is taking a $180 million hit because it is the guarantor of the lease. Stora had already written off its 19.9% equity stake in NewPage, which was a holdover from the sale of Stora's North American assets to NewPage.

WINNERS 
Winner #1) Duluth employees: All of NewPage’s U.S. mills will probably continue running as long as the company is in bankruptcy court. (After three years of writing about ink-on-paper industries, I've seen this movie before. Can you say Tribune, Source Interlink, Quebecor World, AbitibiBowater, White Birch, etc.?) But the future looks especially bright for Duluth, the only NewPage mill besides Port Hawkesbury that can make supercalendered paper.

Winner #2) UPM: The Port Hawkesbury shutdown makes UPM’s recent purchase of the Madison, Maine mill look like a winner because of higher prices and a tight market for SCA paper. Although NewPage’s travails may cause investors to get jittery about other highly leveraged paper companies (which may be why Verso's stock price is down a bit), Finnish giant UPM seems to have the size, strength, and diversification to ride out the storm and to profit from NewPage's weakness.

Winner #3) The Katahdin region of Maine: Ever since the one-machine Millinocket, Maine supercalendered mill closed three years ago, there have been various attempts to reopen it that eventually petered out. But the latest investment plan already seemed to have legs before getting a shot in the arm from Port Hawkesbury's demise. Like Port Hawkesbury, Millinocket has one of the few machines capable of making an SCA for offset printing that rivals the quality and printability of more expensive coated groundwood papers.

Winner #4) Lawyers: Because NewPage filed for Chapter 11 without a “prepackaged” restructuring plan, a passel of lawyers will be kept busy for months sorting through the claims and interests of various creditors. Remember, the first rule of bankruptcy law is that, regardless of who else gets stiffed, the lawyers always get paid.

Related articles:

• NewPage Files Chapter 11, Seeks Buyer for Canadian Mill   
• NewPage Inc. 5000 Ranking Seems Like a Cruel Joke
• A 'Salmon Week' For North American Papermakers: Note the reference to Chapter 11 in this nearly two-year-old article
• List of NewPage Port Hawkesbury’s creditors: The latest NewPage article at ForestTalk, a Canadian site that is thoroughly documenting the Port Hawkesbury saga.