Mercer International Inc. filed a joint prepackaged Chapter 11 plan of reorganization Nov. 9, along with voluntary petitions for itself and its affiliate, Mercer International (Texas) LLC, in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division. The debtors also filed a motion asking the court to consolidate their cases for procedural purposes only and to jointly administer them. The lead case number is 26-90829.
Mercer, a Washington corporation with its principal place of business in Vancouver, is a global forest products company that makes and sells market pulp, lumber, mass timber products, pallets, biofuels, electricity and chemicals. It reported total assets of $1.87 billion and total debts of $1.97 billion as of June 30.
New money notes. The plan calls for Reorganized Mercer to issue $420 million of new money senior secured notes for cash through a rights offering. The amount includes $20 million of original issue discount. Holders of Mercer’s senior notes would receive subscription rights, and members of an ad hoc group of senior noteholders agreed in a Nov. 2 commitment letter to backstop 100% of the offering. The backstop parties would receive a $56 million premium, paid in cash or in additional notes. Participants that exercise their rights also would receive “stapled equity” consisting of 40% of the new common stock and 40% of $325 million of new convertible preferred stock.
New ABL facility. The plan also provides for a new asset-based revolving credit facility of up to $300 million in aggregate principal amount. It could take the form of a global facility, one or more regional facilities, such as North America and Europe, or another loan facility acceptable to the debtors and the required consenting senior noteholders. The commitment would be reduced by the amount the lenders under Mercer’s existing Canadian ABL facility agree to reinstate, extend or provide under a new or amended facility. That facility is a revolving credit agreement dated Jan. 21, 2022, with Royal Bank of Canada as administrative and collateral agent. The plan also refers to a German revolving credit facility, with UniCredit Bank AG as agent, and to an amendment to the Canadian ABL facility.
The cash-funded amount of the new money notes would be reduced dollar for dollar by amounts drawn on the new ABL facility at closing, but only if liquidity at closing is above $300 million. The reduction cannot bring liquidity at closing below $300 million.
Takeback notes and equity. Holders of senior notes would also receive $150 million of takeback senior secured notes in exchange for part of their claims. The new money, premium and takeback notes would be a single class with identical terms. The senior notes consist of $875 million of 5.125% notes due 2029 and 12.875% notes due 2028. The plan treats senior notes claims as allowed at $1.32 billion, including accrued interest, fees and premiums.
Senior noteholders would receive 91.5% of the new common stock and 56.5% of the new convertible preferred stock, in addition to their subscription rights and takeback notes. Their common stock share would be diluted by a management incentive plan reserving up to 8.5% of the new common stock, the stapled equity and conversion of the preferred stock. Existing equity holders would receive 8.5% of the new common stock and 3.5% of the new convertible preferred stock. Reorganized Mercer plans to seek a listing for the new common stock on the New York Stock Exchange or Nasdaq.
Other creditors. The plan leaves secured claims unimpaired. Holders would receive payment in full in cash, the collateral securing their claims, reinstatement or other unimpaired treatment, at the debtors’ option. General unsecured claims also are unimpaired and would be paid in full. Executory contracts and unexpired leases would be assumed on the effective date unless they are rejected under the plan or by court order.
Conditions. Among the conditions to the plan taking effect are that the new ABL facility is entered into and funded, the new senior secured notes are funded and the backstop premium is paid.
Mercer’s board approved the filing in a written consent dated Nov. 6. The consent authorized the company to retain Latham & Watkins LLP and Hunton Andrews Kurth LLP as attorneys, Alvarez & Marsal North America, LLC as financial advisor, Houlihan Lokey Capital, Inc. as investment banker and Stretto, Inc. as claims and noticing agent.
