Mercer International signs 87% noteholder support for prepackaged Chapter 11

The restructuring support agreements cover holders of more than 87% of the aggregate outstanding principal amount of Mercer's 12.875% senior notes due 2028 and 5.125% senior notes due 2029, including members of an ad hoc group, and holders of a majority of the common stock, the company said.

The plan addresses $1.275bn of senior notes. About $1.1bn of those notes would be exchanged for equity, cutting senior note debt by roughly 88%, according to Woodworking Network's account of the 2 November announcement.

Mercer's mills in Germany, Canada and the United States are operating as usual, the company said. It expects to keep serving customers, pay vendors and unsecured claims in the ordinary course, and continue wages and benefits without interruption. "This is a balance sheet recapitalization only," Chief Executive Juan Carlos Bueno said.

The balance sheet swap

The exchange eliminates about $96m of annual cash interest on the senior notes and extends bond maturities until 2031, Woodworking Network reported. The Globe and Mail reported that senior noteholders also receive $150m of takeback notes.

New money comes through a $400m rights offering of new senior secured notes, fully backstopped by certain members of the Ad Hoc Group, Mercer said. The company also expects to repay or partly repay its existing credit facilities and establish revolving commitments of up to $300m.

Mercer's announcement put the rights offering at $400m. A TradingView summary of the transaction documents described a $420m rights offering and a $56m premium paid in additional notes.

What shareholders keep

Existing shareholders are set to receive about 8.5% of the new common stock and 3.5% of the new convertible preferred stock, on a pro rata basis, the company said. Existing common stock will be cancelled when the recapitalization is completed.

A majority of common shareholders support the plan through the support agreements. Their old equity interests are designated for cancellation.

The missed payment

On 30 October Mercer amended the 2028 notes indenture with Computershare Trust Company as trustee, extending the interest-payment grace period from 30 to 90 days.

The payment it skipped was about $25.8m and fell due on 1 October. The amendment came three days before the support agreements were signed on 2 November.

What happens next

Mercer and Mercer International (Texas) LLC, a non-operating US subsidiary, expect to file prepackaged Chapter 11 cases in the Southern District of Texas, Houston Division. No other subsidiary is directly impacted by the implementation of the plan, the company said.

Mercer expects confirmation within about 45 days of filing and completion by the end of 2026, subject to customary conditions including regulatory approvals. It also expects Nasdaq to notify it of a delisting determination and expects its common stock to be quoted over the counter if trading is suspended.

The backstop commitment letter runs until closing, termination or 31 December 2026, subject to specified extensions.