Blackstone-Backed Norske Debt Swap Blocked by N.Y. Judge

  • Noteholders had until Wednesday to approve exchange of debt
  • Unsuccessful swap leaves bondholders in charge, company says

Blackstone Group LP’s efforts to protect its stake in a distressed Norwegian paper maker were blocked by a New York judge after a last-minute challenge to a proposed debt swap from a group of bondholders.

The holders of 326 million euros ($356 million) of Norske Skogindustrier ASA notes had until Wednesday to decide whether to swap them for longer-term securities or face severe losses.

The offer violates an agreement governing the notes because it allows the company to incur new secured debt obligations, a trustee representing the bondholders said in a lawsuit filed in New York state court Tuesday. The swap is an “attempted end-run” around the prohibition, the trustee said.

New York Supreme Court Justice Eileen Bransten agreed to put the debt swap on hold temporarily.

“This seems like something that needs to be put over, but not for an indefinite period of time,” she said, scheduling a hearing on a request for a broader injunction for Feb. 24.

The unprofitable newsprint producer is seeking to restructure about $1 billion of debt after a decade of declining sales. The company agreed on the terms of the exchange with Blackstone’s GSO Capital Partners unit and Cyrus Capital Partners LP, which hold some of its unsecured bonds and shares.

BlueCrest Capital

The secured bondholder group includes BlueCrest Capital Management, Marathon Asset Management and Sampo Oyj and is being advised by Rothschild, people familiar with the matter said in October.

Officials at BlueCrest and Sampo declined to comment on the lawsuit, while those at Marathon weren’t immediately able to comment. Paula Chirhart, a spokeswoman for Blackstone, declined to immediately comment on the lawsuit.

The bondholders’ claims are without merit, Norske Skog spokesman Carsten Dybevig said in an e-mail.

Earlier, Dybevig said an unsuccessful exchange would leave the secured bondholders in charge and likely wipe out the investments of the 2016 and 2017 noteholders.

Debt Restructuring

GSO and Cyrus, which raised equity stakes in Norske Skog to shore up support for the deal, hold about 38 percent of its 2016 securities and 68 percent of those due in 2017. At least 90 percent of the 2016 notes and 75 percent of the 2017 bonds need to be tendered for the exchange to succeed.

The plan would extend bonds long enough to avoid triggering payouts on credit-default swap contracts GSO sold insuring the company’s debt, people familiar with the matter said in December, asking not to be identified because the information is private. An official at GSO in London declined to comment on the exchange offer.

New Securities

Under the terms, investors would swap 2016 and 2017 bonds for qualified securitization financing notes due in 2026, new unsecured securities due in June 2019 and December 2026, perpetual notes and the possibility to invest as much as 15 million euros in the paper maker’s equity at 2.24 kroner a share.

The case is Citibank NA, London Branch v. Norske Skogindustrier ASA, 650503/2016, New York State Supreme Court, New York County (Manhattan.)

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