Verso Paper Corp.’s second-lien debt dropped to the lowest level in six months as Moody’s Investors Service cut ratings of the coated-paper maker three grades to reflect “very high credit risk.”
The $396 million of 8.75 percent securities due 2019 fell 1.25 cents to 40.5 cents on the dollar to yield 36.2 percent at 2:17 p.m. in New York, the lowest closing level since Dec. 20, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Moody’s reduced the Memphis, Tennessee-based company’s rating today to Caa3 from B3 and expects a distressed exchange or a bankruptcy filing if Verso is unable to close on its $1.4 billion deal to buy paper company NewPage Holdings Inc., according to a statement from the credit grader.
Verso, which is controlled by Leon Black’s Apollo Global Management LLC, announced the buyout in January, which is becoming less likely to be completed as the Justice Department continues its review of antitrust and compliance issues, according to Moody’s. Verso has been unsuccessful in obtaining a distressed debt exchange that’s a prerequisite for the deal, the credit grader said.
Standard & Poor’s raised the company’s grade two levels to CCC from CC to reflect its “stand-alone” valuation after the expiration of the distressed exchange offer. The rating change is “entirely technical,” S&P analyst David Kuntz said in a telephone interview.
“The double C is a very specific rating for distressed exchanges and that without having a distressed exchange in the marketplace, the double C wasn’t the appropriate rating and a triple C is more reflective of the corporate credit rating,” Kuntz said.
Verso has reported four straight years of losses as it faces declining demand for the paper used in magazines and catalogs.