NewPage Corp. is working with advisers to help restructure its debt as owner Cerberus Capital Management LP seeks to fend off distressed investors, including Apollo Global Management LLC.
Lazard Ltd. (LAZ), FTI Consulting Inc. (FCN) and law firm Dewey & LeBoeuf LLP are advising Miamisburg, Ohio-based NewPage, according to three people with knowledge of the matter, who declined to be identified because the talks are private.
Leon Black’s Apollo and Avenue Capital Group, run by Marc Lasry, hold more than $400 million of NewPage’s $806 million of second-lien bonds, which may be converted to equity if the company can’t meet debt payments, two of the people said. NewPage is attempting to cut costs and reduce debt by selling assets after demand for coated-paper declined since 2008.
“The second-liens are definitely in distressed territory and indicate a restructuring needs to happen,” said Rahul Gandhi, an analyst at debt-research firm CreditSights Inc.
Amber Garwood, a spokeswoman for NewPage, and representatives for Cerberus, Apollo, Avenue, Lazard, FTI and Dewey & LeBoeuf declined to comment.
NewPage’s 10 percent second-lien notes due May 2012 fell 0.8 cent to 57.4 cents on the dollar as of 9:55 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt has declined 3.6 cents since April 15 when NewPage said it was replacing its chief financial officer. The securities are down from 70 cents in March, Trace data show.
The company’s $1.77 billion of 11.375 percent bonds due in December 2014 dropped to 99.4 cents from 100.75 cents on the dollar since NewPage announced the management change, Trace data show.
Volatility will continue in the bonds until Apollo “gets its chance to force” NewPage “into a restructuring and gain control of the equity through the process,” London-based Gandhi wrote in an April 19 report.
NewPage’s capital structure is “stressed” and about $1 billion over-levered, said Ed Sustar, a credit analyst for Moody’s Investors Service.
“The issue is that overall demand for paper dropped in 2008 and there continues to be a long-term sector decline with the migration from print to digital,” said Sustar, who is based in Toronto. “Companies are shutting down mills to keep supply and demand in balance, but prices are not yet at levels to allow them to generate enough money to make a profit.”
Cerberus took control of NewPage in 2005 when it bought MeadWestvaco Corp.’s paper business for $2.3 billion. An affiliate of Cerberus provided $415 million to NewPage, according to a statement at the time.
“Cerberus may try to preserve value and appease Apollo and Avenue through a rights offering for the second-lien,” said Amer Tiwana, an analyst at CRT Capital Group LLC in Stamford, Connecticut. “Given that their equity is relatively worthless, Cerberus’s only way of keeping control may be through ownership of the second-lien which could be converted into new equity.”
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