Tuesday, February 4, 2014

Verso Paper

Verso was supposed to merge with NewPage, but the deal was contingent on Verso bondholders agreeing to an exchange offer that would basically give them a 50 percent haircut:

"Upon the consummation of the Merger, (1) the principal amount of the outstanding New Second Lien Notes will be adjusted such that a holder of $1,000 principal amount of New Second Lien Notes immediately prior to the Merger will hold $470 principal amount of New Second Lien Notes immediately following the Merger, (2) the maturity date of the New Second Lien Notes will be extended to August 1, 2021, (3) the interest rate will be adjusted such that the New Second Lien Notes will bear interest at the rate of 10% per annum from and after the date of the consummation of the Merger, (4) the optional redemption provisions will be amended, and (5) the New Second Lien Notes will thereafter be governed by different covenants."
And that exchange offer is not going very well, which threatens to torpedo the merger.
"In light of substantially less participation by the Early Tender Time as compared to the minimum participation thresholds, and based on the large disparity between what a group of non-participating noteholders has requested and what Verso is able to offer under the merger agreement governing the pending merger, Verso is concerned about its ability to consummate the exchange offers as required under the merger agreement. Verso has sent a letter to the board of directors of NewPage informing it of Verso’s concern about its ability to satisfy the exchange offer requirement and thus close the merger."
It's pretty outrageous that VRS has a market cap of $162 million and they wanted the bonds to agree to a huge haircut without any upside. Why shouldn't the bonds get a bunch of VRS equity if there is going to be a haircut?

My thinking is that since the upside on bonds is limited to the coupons, they should never ever suffer a loss of principal unless the equity has been wiped out.


Unknown said...

That may be true in theory.In practice,shareholders have some negotiating power inasmuch as they have to agree to any deal - they can prevent the deal from going through.

Anonymous said...

This looks like a win-win. For the deal to close, bondholders will dilute the equity substantially. If the shareholders don't agree, then the deal will not close and the price will fall substantially. APO owns >60-70% of VRS. Who owns the bonds -- is there any concentration of ownership?

CP said...

APO, Lasry, and Aristea all own the equity.


I wonder if the bonds are perceived as dumb money and the management/owners thought they could stuff the bonds?

Anonymous said...

I suppose that's what they thought. You might see a sell off in the equity soon if there is concern the deal will collapse.

CP said...

It's just a hilariously bad proposal for the bonds.

In fact, the stock basically rallied by the amount that they thought the bonds were going to be shafted out of.

Anonymous said...

Apollo owns some bonds too. This has been a long time coming ever since they tried it when NewPage was bankruptcy. Every party here knows this is the only way going forward.

CP said...

What, this bogus exchange offer?