They Want Us to Fail, Norske Skog Says of Suing Bondholders

  • Paper maker says holders aim to profit on credit-default swaps
  • Bondholders suing in U.S. federal court to block debt exchange

Norske Skogindustrier ASA said bondholders suing to prevent a debt exchange want to drive it into bankruptcy to profit from bets against its survival.

The noteholders are trying to trigger payouts on credit-default swaps, James Warnot, a lawyer for the distressed Norwegian paper maker, told a U.S. federal court judge on Tuesday. Swaps are used to speculate on a company’s ability to repay debt or insure against default.

Norske Skog is seeking to restructure about $1 billion of debt after a decade of declining sales. Holders of 326 million euros ($366 million) of notes have until Feb. 26 to decide whether to exchange them for longer-term securities or face severe losses. A New York court put a temporary halt on the deal last week.

The case has been moved to federal court, where U.S. District Judge Richard Sullivan scheduled a March 2 hearing on the bid to block the exchange, pending the outcome of the litigation. Sullivan said he was unlikely to allow Norske Skog to seek information about the suing bondholders’ positions because they don’t have a fiduciary duty to the company. He denied its request to require the group to post $100 million in collateral to cover potential damages that might result from the suit.

Secured Bondholders

Norske Skog “really views this as the last opportunity to save the company,” Warnot told the judge.

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.

BlueCrest said last week that it’s “not concerned as to what happens to CDS on Norske Skog” and has “no front end CDS exposure to Norske Skog.”

“We are only interested in the long-term growth and turnaround of the company,” Ed Orlebar, a spokesman for the hedge fund, wrote in an e-mail on Feb. 4. He affirmed the statements on Wednesday and declined to comment on the new accusation or lawsuit.

An official at Finnish insurer Sampo declined to comment on the court hearing. Andrew Rabinowitz, chief operating officer of New York-based Marathon, didn’t respond to requests for comment.

GSO, Cyrus

Norske Skog agreed on the terms of the exchange with Blackstone Group LP’s GSO Capital Partners unit and Cyrus Capital Partners LP, which hold some of its unsecured bonds and shares.

Those hedge funds are the ones seeking to profit from derivatives bets, Clay Pierce, a lawyer for the trustee representing the secured bondholder group, told the judge on Tuesday. The proposed exchange violates an agreement governing the notes, because it allows the company to incur new secured debt obligations, the trustee said in the complaint.

GSO raised its stake in Norske Skog in December in hopes of keeping the company afloat long enough to avoid triggering payouts on credit insurance it sold, people with knowledge of the matter said at the time.

“We are long-term investors in Norske Skog who want it to avoid insolvency so safeguarding the jobs of its employees and suppliers,” Andrew Dowler, a spokesman for Blackstone in London, said in an e-mail on Wednesday. “Others have taken action which threatens the company’s future. We have invested to secure its future. We are one of the largest financial investors in Norske Skog across its capital structure.”

A representative of Cyrus declined to comment on the restructuring or litigation.

The cases are Citibank NA, London Branch v. Norske Skogindustrier ASA, 650503/2016, New York State Supreme Court, New York County (Manhattan) and 1:16-cv-00850, U.S. District Court, Southern District of New York (Manhattan).

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