Blackstone-Backed Norske Skog Wins Ruling With Big Caveat

Norske Skogindustrier ASA, the distressed Norwegian paper maker backed by Blackstone Group LP’s credit arm, was allowed by a New York judge to proceed with its debt exchange but was warned that the current plan is prohibited by existing bond documents.

U.S. District Judge Richard Sullivan denied a request by a group of bondholders that would block the plan because they couldn’t prove “irreparable harm,” according to a court ruling on Tuesday. The bond exchange plan, however, would be “explicitly prohibited” by existing indentures, he said.

Norske Skog’s debt-swap plan has divided investors, with opposition from a group of secured bondholders including BlueCrest Capital Management, New York-based Marathon Asset Management and Finnish insurer Sampo Oyj. The debt exchange has the support of its largest shareholder, Blackstone’s GSO Capital Partners, and Cyrus Capital Partners.

GSO and Cyrus, which also hold unsecured bonds due in 2016 and 2017, reached an agreement with Norske Skog to exchange those notes for ones with longer maturities. The plan, which still needs support from other bondholders, includes new asset-backed notes.

Norske Skog may need to change the exchange offer to comply with the indentures, Peter Kawada, an analyst at Jefferies in London, wrote in a note to clients on Wednesday. This would be positive for the senior secured notes but negative for holders of the unsecured 2016 and 2017 securities, assuming no new money is contributed, he said.

The company will review the details of the ruling with its legal advisers and consider any effects on the exchange offer, it said in a statement on Wednesday.

The exchange was temporarily blocked by a New York state judge and Norske Skog extended the deadline to March 11. Norske Skog still has to respond to an amended complaint by the group, the judge said.

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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