April 16 (Bloomberg) -- AbitibiBowater Inc., North America’s biggest newsprint maker, sought bankruptcy protection after U.S. lenders refused to accept a proposed debt restructuring.
AbitibiBowater had assets of $9.9 billion and debt of $8.78 billion on Sept. 30, according to a Chapter 11 petition filed today in U.S. Bankruptcy Court in Wilmington, Delaware. Thirty-one affiliates also entered bankruptcy. The Montreal- based company plans to seek court protection in Canada tomorrow.
“Today’s announced decisions ensure business continuity for AbitibiBowater and were made only after all other viable options to recapitalize our long-term debt were exhausted,” Chief Executive Officer David Paterson said in a statement.
Paterson had sought to refinance debt to reduce borrowing costs that reached $203 million in last year’s second quarter. AbitibiBowater, which sold timberlands in Quebec to repay debt, is struggling with a drop in North American paper demand as newspapers lose readers and advertisers to the Internet. The company owns about 43 percent of U.S. and Canadian newsprint capacity, according to RBC Capital Markets.
“This is a relief,” Paul Quinn, an analyst of paper and forest-products companies at RBC in Vancouver, said of today’s bankruptcy filing. “Abitibi tried to reorganize outside the courts, but the goal posts kept moving.”
AbitibiBowater plans to borrow as much as $200 million from Fairfax Financial Holdings Ltd. and Avenue Management LLC to fund some Bowater operations as it reorganizes, according to the statement.
Bowater Exchange
AbitibiBowater’s most recent drive to restructure its debt began in February when the company sought creditor support to exchange $1.8 billion of notes issued by its Bowater subsidiary for new notes.
AbitibiBowater later proposed a recapitalization plan for its Abitibi-Consolidated unit that would have reduced net debt by about $2.4 billion. Abitibi said in a regulatory filing on March 16 that it might have to seek bankruptcy protection unless it completed the refinancing.
The 35 largest unsecured creditors of AbitibiBowater and its affiliates are owed about $2.7 billion, according to court papers. Bank of New York Mellon Global Corporate Trust is trustee for the company’s $600 million in 7.95 percent notes due 2011; $400 million in 6.5 percent notes due 2013 and $368.9 million in convertible notes due 2013.
The bank is also trustee for $248.1 million in 9 percent debentures due this year; $234.4 million in floating rate senior-notes due 2010; and $125 million in 9.5 percent debentures due 2012.
Declining Demand
U.S. and Canadian demand for newsprint fell a combined 33 percent in February, the most in at least 27 years, according to the Montreal-based Pulp and Paper Products Council. Publishers of the Chicago Tribune, Philadelphia Inquirer, Minneapolis Star Tribune and New Haven Register filed for bankruptcy after industrywide print-advertising sales plunged the most in 37 years in the third quarter, according to the Newspaper Association of America.
With newsprint demand slumping, AbitibiBowater and other producers in the U.S. and Canada have sought to keep prices up by shutting mills and boosting newsprint exports.
Gannett Co. Chief Financial Officer Gracia Martore said on a conference call today she expected newsprint prices to fall this year because of a surplus. McLean, Virginia-based Gannett, the owner of USA Today, is the biggest U.S. newspaper publisher.
Mill Closings
“Oversupply in the newsprint market is still a factor and more capacity will have to be shut,” Quinn said. “It’s too early to know which mills will come out the other side of the bankruptcy process.”
AbitibiBowater has 23 pulp and paper mills and 30 wood- products plants in the U.S., Canada, the U.K. and South Korea. The company was formed in the October 2007 merger of Bowater Inc. and Abitibi-Consolidated Inc., a transaction valued at about $4.8 billion in stock. The newsprint makers said at the time the combination would cut costs by $250 million a year.
AbitibiBowater’s financial advisers are Blackstone Advisory Services LP and BMO Capital Markets. Paul, Weiss, Rifkind, Wharton & Rice LLP, Stikeman Elliott LLP and Troutman Sanders LLP are providing legal advice, the company said.
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