PORTLAND, Maine — Verso Paper executives pointed to high debt, an unexpected fall in demand for coated paper and a lengthy antitrust settlement as reasons the company now seeks to reorganize through a Chapter 11 bankruptcy, filed early Tuesday.
Company officials laid out what led to the bankruptcy and the path forward for Verso in statements to the U.S. Bankruptcy Court in Delaware and in presentations to lenders Tuesday.
In both, the company said it tried to deal with declining coated paper demand by cutting costs and in achieving operations cost savings from its $1.4 billion purchase of larger competitor NewPage, but a high debt load and delayed court approval of its merger posed challenges.
Those cuts included idling two machines at its Androscoggin Mill in Jay, which also resulted in laying off 300 employees at the end of the year.
The company expects the shutdown of its No. 2 coated paper machine and a pulp dryer will improve the Jay mill’s performance relative to its other mills in the year ahead. The Jay mill ranked last of all the merged company’s mills on a comparison of operating earnings last year, but Verso expects the mill will rank third in 2016.
The company has asked for court approval to get additional financing for up to $675 million to continue operating through a restructuring it said “will have virtually no impact on day-to-day operations of the company.”
For the first three quarters of 2015, the revenue of NewPage and Verso mills together dropped by about 15 percent to about $2.4 billion in 2015 from $2.8 billion in 2014.
“To counteract declining revenue, [Verso has] aggressively cut costs. For example, [Verso has] indefinitely idled an underperforming mill [in Wickliffe, Kentucky], and implemented operational improvements at other mills,” said Verso Chief Financial Officer Allen Campbell in a written statement to the bankruptcy court.
Campbell said in the statement that the merger did save $123 million in 2015, through reduced corporate overhead and other costs, but the year of waiting for court approval of an antitrust settlement with the U.S. Department of Justice ” was extremely detrimental to [Verso’s] ability to offset weak market conditions.”
From 2010 to 2014, Campbell said in the statement, domestic demand for coated paper used in magazines and other glossy publications dropped by about 16 percent.
Last year, the increasing strength of the U.S. dollar against other currencies made that problem worse, lowering the price of foreign competitors and adding to the market-driven decline in demand for Verso’s products.
Campbell said that coated freesheet imports into the United States doubled in 2015, from the previous year. Verso accounts for about half of all the coated freesheet production capacity in North America.
At its Jay mill, it produces that grade as well as specialty papers, uncoated freesheet and coated groundwood papers. Imports of coated groundwood paper also rose 18 percent in 2015, he wrote.
The combination of falling domestic demand and increasing imports reduced the market for domestic suppliers by about 8 percent last year, the company said, from shipments of about 16.2 million tons in 2014 to about 15 million tons in 2015.
That decline came as the company stared down about $270 million in annual interest payments on various debt held by investors.
Campbell said the company expects it can survive in the long-run by reducing its debt load and continuing with the goal of the merger with NewPage, which he said sought to create “a more efficient organization, well-suited to compete long term in a secularly declining industry.”