Norske Skog Extends Blackstone-Backed Debt Swap After Law Suit

  • Noteholders have until Feb. 26 to vote on exchange offer
  • N.Y. judge put deal on hold after rival bondholder group sued

Norske Skogindustrier ASA pushed back its deadline for a debt exchange offer backed by Blackstone Group LP after a rival group of bondholders posed a last minute challenge to the plan.

Holders of 326 million euros ($356 million) of the distressed Norwegian paper maker’s bonds now have until Feb. 26 to decide whether to swap their notes for longer-term securities, the company said in a statement on Wednesday. A New York judge temporarily blocked the deal on Tuesday after the group of investors holding secured bonds filed a lawsuit.

The unprofitable newsprint producer is seeking to restructure its approximately $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.

“Norske Skog will defend its position vigorously and the legal advisors see no merit in the allegations made by the plaintiff in the court proceedings,” the company said in the statement. The content of the exchange offer will remain unchanged, the company said.

Wiped Out

Norske Skog had previously said an unsuccessful exchange would leave the secured bondholders in charge and likely wipe out the investments of the 2016 and 2017 noteholders.

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

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

Bondholder Group

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.

GSO and Cyrus, which raised equity stakes in the company to shore up support for the deal, hold about 38 percent of Norske Skog’s 2016 securities and 68 percent of those due 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 and lawsuit.

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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