Apollo Said to Opt Out of Verso Talks as Creditors Organize

Apollo Global Management LLC is staying out of talks intended to restructure Verso Corp.’s $2.8 billion of debt, signaling to the paper maker’s creditors that it may be preparing to cede its controlling stake in the company, according to three people with knowledge of the matter.

Leon Black’s $162 billion buyout firm, which owns 44 percent of Verso and is the largest shareholder, hasn’t taken steps typically done by private-equity sponsors in a restructuring, such as hiring a financial adviser to protect its investment, said the people, who asked not to be identified discussing the negotiations. It has retained Akin Gump Strauss Hauer & Feld LLP as a legal adviser, one of the people said.

Apollo purchased Verso from International Paper Co. in a $1.4 billion leveraged buyout in 2006. The private-equity firm and others invested $289 million of capital in the deal, according to May 2008 regulatory filing. Since then, Verso has struggled with competitive pressures in the age of Amazon.com Inc.’s Kindle and Apple Inc.’s iPad.

With the company’s shares trading for between 3 cents and 4 cents, Apollo’s equity stake is now worth less than $1.5 million. But the firm already has recouped most of its investment through dividend payments it took before Verso’s initial public offering in 2008, according to regulatory filings.

Shawn Hall, a representative for Memphis, Tennessee-based Verso, and Charles Zehren, a spokesman for Apollo at Rubenstein Associates Inc., didn’t respond to phone and e-mail messages seeking comment. 

Protecting Investments

Apollo’s equity stake sits behind about $2.8 billion of borrowings, none of which are trading higher than 37 cents on the dollar, according to prices compiled by Bloomberg. If it steps aside, the company’s creditor factions could take the lead in negotiating Verso’s reorganization. Equity sponsors can sometimes delay a restructuring, a move that can dilute the value of assets on which investors have a claim.

The company’s creditors have been organizing to protect their investments ahead of a reorganization, the people said. Lenders who hold a $734 million term loan issued by NewPage Corp., the paper company Verso bought in January, have hired financial adviser Ducera Partners and law firm Ropes & Gray LLP, the people said. Another set of investors that holds Verso bonds has retained investment bank Houlihan Lokey Inc. and law firm Milbank Tweed Hadley & McCloy LLP, they said.

Representatives for Akin Gump, Ducera, Houlihan Lokey, Milbank and Ropes & Gray declined to comment.

Verso hired its own advisers about a month ago to help it deal with its borrowings before an interest payment of about $79 million comes due in January, people with knowledge of the matter said at the time.

Weak Demand

Apollo’s deliberation comes as paper makers struggle with lagging print magazine sales, slowing catalog distributions, increasing efforts by businesses to cut their paper use and more people turning to Kindles and iPads for their reading material.

The value of Verso’s debt has plunged since the NewPage purchase. Its largest bond, an 11.75 percent first-lien note due January 2019 issued this year to former NewPage shareholders, was trading at nearly par in March but fell about 85 cents to 15.3 cents at 11:40 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Its 13 percent second-lien notes due August 2020 last traded at about 1.4 cents on the dollar on Nov. 23, Trace data show.

The NewPage loan due February 2021 is fetching 37 cents, the highest price among Verso’s obligations, according to data compiled by Bloomberg.

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