Verso Lines Up Its Big Creditors for Debt-Equity Swap

Verso Corp. has lined up support from Centerbridge Partners, Oaktree Capital Management and other powerful creditors for a balance-sheet restructuring that would swap $2.4 billion in debt for new equity in the reorganized paper company, court papers say.

Signatures gathered on Tuesday on an agreement reflect "a tremendous amount of consensus across the capital structure" about how to clear up an overload of debt, Verso lawyer George Davis said on Wednesday at the company's first hearing before the U.S. Bankruptcy Court in Wilmington, Del., since entering chapter 11 protection a day ago.

Senior and junior creditors lined up in force to back Verso's proposed financial reshaping, giving the company a running start toward surviving in a world where online channels have reduced demand for the coated paper stock Verso produces for magazines and catalogs.

Verso filed for bankruptcy proceedings to implement its financial restructuring, a move it previously signaled it might have to make. The need to pay interest on $2.8 billion in debt has drained Verso of cash, and efforts to rein in costs couldn't make up for the drop in paper demand.

However, some of Verso's most vulnerable creditors may have little about which to worry. Talks are under way that could lead to an agreement to provide for payment in full for Verso's suppliers and other trade creditors, Mr. Davis said.

Verso on Wednesday won interim approval for a bankruptcy financing-package that may run as high as $775 million. The money will keep the company in operation during the restructuring effort. Failure to win court approval threatens devastating harm to the employer of some 5,200 people, court papers say.

Mr. Davis said the paper mill jobs Verso provides will disappear permanently if the company doesn't preserve its business in bankruptcy proceedings. The company is a major employer in small communities, and some families have worked in the mills for generations, Verso's lawyer said.

In broad strokes, Verso's chapter 11 plan will combine the debt structures of Verso and NewPage, the former rival Verso acquired last year after prolonged fights with regulators and bondholders. Verso's major creditors will get 53% of the reorganized company, while NewPage's creditors are being offered 47%.

Some 55% of Verso's senior creditors and 70% of the junior creditors have signed the restructuring support agreement, Mr. Davis said. On the NewPage side, some 68% of the senior creditors have also agreed to back the turnaround effort, according to Verso's lawyers.

Those numbers are expected to grow, as creditors who weren't involved in the months of negotiations preceding Verso's chapter 11 restructuring get a chance to review the terms, Mr. Davis said.

Negotiations were acrimonious but resulted in a "phenomenal" deal that has widespread support, including junior creditors, said Dennis Dunne, lawyer for Verso's senior creditors. In less than a week, Mr. Dunne said, Verso's senior creditors will know whether they will support payment in full for trade creditors.

If trade creditors are promised full payment, Verso may be able to get through bankruptcy quickly, without the need to contend with an official committee of unsecured creditors, he said.

According to Verso's lawyers, the Verso and NewPage businesses operate well together, but a shared services agreement between them could lead to "uncertain and potentially value-destructive litigation" unless there is an interim deal. A standstill agreement has been worked out that averts, for now, litigation over how much Verso and NewPage owe each other for shared services.

Verso first tried to buy its former rival during NewPage's own bankruptcy proceedings, was rebuffed, but continued its pursuit after NewPage emerged from bankruptcy. The merger closed in January 2015.

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

January 27, 2016 16:35 ET (21:35 GMT)

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