NewPage: Verso combination proposal 'posed significant downside risks'

By Caroline Salls

Pittsburgh, July 3 - NewPage Corp. said a business combination proposed by Verso Paper Corp. to NewPage's noteholders "posed significant downside risks to its stakeholders, employees and business."

According to an 8-K filed by Verso with the Securities and Exchange Commission, Verso has been in discussions with NewPage's 11 3/8% senior secured first-lien noteholders in an effort to achieve a potential business combination as part of a plan of reorganization in NewPage's Chapter 11 bankruptcy case.

NewPage said in its release that an informal group of second-lien noteholders presented the unsolicited NewPage/Verso combination proposal to an informal group of first-lien noteholders.

NewPage said the first-lien noteholder group also did not support the proposal. As a result, NewPage said it does not expect further discussions regarding this proposal.

Proposal terms

According to a Verso news release, its proposed transaction would provide NewPage's first-lien noteholders with $1,425,000,000 of value, consisting of $1,075,000,000 of new Verso first-lien notes, $150 million of Verso common stock and $200 million of cash.

In addition, the proposed transaction would include a 100% recovery in cash to repay NewPage's debtor-in-possession financing, a 100% recovery in cash for the allowed priority and administrative claims in the bankruptcy proceedings, a to-be-determined amount of Verso common stock for the holders of NewPage's second-lien notes and a to-be-determined recovery for NewPage's unsecured creditors.

To facilitate the transaction, a $200 million cash equity investment in Verso was contemplated, the Verso release said.

According to the NewPage news release, NewPage has been engaged in a series of discussions with its various constituents, including first-lien noteholders, second-lien noteholders and its unsecured creditors committee in an effort to finalize a consensual Chapter 11 plan.

Combination benefits

Verso said it believes that a combination with NewPage would create a stronger business in the global coated and supercalendered paper industry because of the material cost savings that would be achieved.

In addition, Verso said a combination with NewPage would provide a compelling option for a restructuring because it would afford NewPage's first-lien noteholders a very attractive recovery, while treating NewPage's constituencies, employees and other creditor classes fairly.

Despite these advantages, Verso said it has been disappointed with the lack of progress in advancing its discussions with the first-lien noteholders.

Verso said a May 30 term sheet was previously presented to the first-lien noteholders, but that term sheet has been withdrawn and superseded in its entirety by the June 18 term sheet, which was revised to reflect NewPage's updated earnings and cash balance.

NewPage, a Miamisburg, Ohio-based producer of printing and specialty papers, filed for bankruptcy Sept. 7, 2011 in the U.S. Bankruptcy Court for the District of Delaware. Its Chapter 11 case number is 11-12804.

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