Last week's Chapter 11 filing by NewPage Corporation, a company
with assets and liabilities in the billions of dollars, stands as a relative
rarity in the current restructuring environment. Running contrary to the "new
normal" in larger restructurings, NewPage filed for bankruptcy protection
without a pre-arranged or pre-negotiated exit solution, such as a back-stopped
rights offering or a stalking horse bidder for a sale of the enterprise as a
going concern. The company instead will take advantage of the protections
offered by Chapter 11 while it seeks to work out a solution with its creditors.
It promises to be an interesting case to watch.
NewPage at first glance appears to have viable core
operations and an extremely top heavy balance sheet. A deleveraged
enterprise that successfully uses Chapter 11 to shed unprofitable or less
profitable business lines, reject burdensome contracts, sell unneeded assets,
and streamline operations would likely have substantial long term value.
The primary focus in this case therefore will be the
simple question: where's the fulcrum? In other words, which level of debt
in the capital structure will be entitled to receive the majority of the equity
when the company emerges from Chapter 11? So far, it looks to be shaping
up to be a battle of NewPage's First Lien Noteholders versus its Second Lien
Noteholders. Unsurprisingly, both groups are controlled by aggressive
hedge funds that specialize in buying distressed debt at prices below
Read this article in its entirety at Kelley Drye &
Warren LLP's Bankruptcy
Law Insights blog
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