HUB TELEGRAM — Verso Corp. is preparing to file for bankruptcy protection as soon as this week as a grace period on a missed interest payment nears expiration, according to two people with knowledge of the matter.
The papermaker, which is backed by Apollo Global Management LLC, missed payments owed to two sets of creditors earlier this month. The five-day grace period for skipping the amount owed to some lenders expires Friday. Verso is seeking approval from the creditors on a bankruptcy plan that would convert almost all of the company’s $2.8 billion of debt into equity, cutting the company’s debt load, said the people, who asked not to be identified discussing the negotiations.
The proposed bankruptcy deal calls for fully merging Verso and NewPage Corp., the paper company Verso bought last year, and dividing the combined entity’s equity value between two major creditor factions, the people said. Stakes would be split up between bondholders that own Verso’s $1.86 billion of debt and lenders that hold about $970 million of NewPage borrowings, they said.
Apollo purchased Verso from International Paper Co. in a $1.4 billion leveraged buyout in 2006. Verso bought NewPage in January 2015 — about two years after NewPage emerged from bankruptcy — in an attempt to drive down costs. But it has continued to struggle with competitive pressures in the age of Amazon’s Kindle and Apple’s iPad.
Kathi Rowzie, a spokeswoman for Memphis, Tennessee-based Verso, didn’t respond to phone and email messages seeking comment. Charles Zehren, a spokesman for Apollo at Rubenstein Associates Inc., didn’t comment. A spokeswoman for investment bank PJT Partners Inc., which is advising Verso, declined to comment. A spokeswoman for law firm O’Melveny & Myers LLP, which also is advising, didn’t respond to messages left for comment.
A representative at financial adviser Ducera Partners, which is advising NewPage lenders, declined to comment. A spokesman at law firm Ropes & Gray LLP, which is also advising the lenders, didn’t respond to messages seeking comment. A representative for Houlihan Lokey Inc., the investment bank advising Verso creditors, declined to comment, while a spokeswoman for the group’s law firm Milbank Tweed Hadley & McCloy LLP didn’t provide comment.
If creditors can’t agree on how to divvy up the company’s assets, Verso will file for bankruptcy for itself and NewPage without a pre-negotiated plan, the people said. Creditors then would have to decide whether they want to continue the discussions or take over their separate assets to operate them or sell them, the people said.
Advisers to the company have been discussing with some of the creditors potential terms for bankruptcy financing that would fund the company during the Chapter 11 process, the people said. One loan, known as a debtor-in-possession financing, would use Verso assets as collateral and a second would use NewPage’s assets, they said.
Apollo has been staying out of Verso’s restructuring talks, people with knowledge of the matter said last month. The buyout firm retained Akin Gump Strauss Hauer & Feld LLP as a legal adviser, one of those people said. A spokesman for Akin Gump didn’t provide a comment.
Verso said in a Jan. 15 regulatory filing that it would use the five-day grace period after missing an interest payment owed Jan. 14 to holders of a $731 million NewPage term loan. It also said that it elected to take a 30-day grace period on interest payments it skipped that were owed Jan. 15 to its senior secured 11.75 percent Verso bonds and a separate set of lower-ranking 11.75 percent Verso bonds, according to the filing.
The NewPage term loan was quoted at 35.69 cents on the dollar Thursday, the highest price for any of the company’s obligations, according to prices compiled by Bloomberg. It has fallen about 61 cents from a year ago, the data show.
The top-ranked Verso bond, the 11.75 percent secured notes due January 2019, last traded at 18.5 cents on Dec. 21, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The bond has lost more than 76 cents of its value from a year ago, Trace data show.
One of Verso’s most junior bonds, the 11.38 percent subordinated notes due August 2016, last traded at 1.6 cents on Nov. 16, according to Trace data.