Mercer International is laying the groundwork for a potential Chapter 11 bankruptcy filing as the Canadian pulp producer faces mounting financial pressure and negotiates a possible recapitalization with its bondholders, Bloomberg reported on October 21, citing people familiar with the matter.

The company could seek court protection in the coming weeks, according to the report. Texas is being considered as a possible filing location, although no final decision has been made and plans could change. Creditors are expected to take control of the company if it files for bankruptcy, Bloomberg reported.

Mercer has struggled with rising fiber and energy costs and persistent cash outflows. The company reported a net loss of US$128 million in the first half of 2026, while its cash balance declined from US$186.8 million at the end of 2025 to US$78.8 million at June 30. Mercer had approximately US$1.3 billion in long-term debt at the end of June, according to Bloomberg.

Its shares closed at approximately US$0.21 on October 21, down from US$1.98 at the end of 2025.

Debt negotiations and deferred interest payment

The potential Chapter 11 filing follows Mercer's October 2 disclosure that it was in advanced discussions with an ad hoc group of holders of its 12.875% senior notes due 2028 and 5.125% senior notes due 2029. Members of the group hold more than 75% of the aggregate outstanding principal of the two note issues.

Opportunistic credit investor Redwood Capital Management has been acquiring Mercer's distressed debt, becoming one of its largest creditors and part of the majority bondholder group, Bloomberg reported.

In a filing with the U.S. Securities and Exchange Commission, Mercer said the discussions concerned a comprehensive recapitalization transaction and a significant capital infusion intended to address upcoming debt maturities, improve liquidity and reduce funded debt and associated interest expenses.

The company also disclosed that it had elected not to make an approximately US$25.8 million interest payment due October 1 on its 2028 notes, instead using the 30-day grace period provided under the bond agreement. Mercer stated that using the grace period did not itself constitute an event of default under the indenture.

At the time of the filing, Mercer said it was optimistic that a transaction could be announced in the near term, while cautioning that there was no assurance an agreement would be reached or when its terms might be finalized.

Operations continue amid financial pressure

Despite its financial difficulties, Mercer said in its October 2 filing that its pulp, lumber and mass-timber operations were continuing in the ordinary course. It also said it was continuing to serve customers and pay suppliers, contractors and employees as usual.

The company's mass-timber business offers a contrasting development. Mercer reported a US$151 million order book for the business in August, with data centers accounting for 70% of the total. The order book was expected to support steady production at its mass-timber plants into 2027.

However, the financial pressure on the group remains significant as it seeks to address its debt obligations and liquidity needs. A potential Chapter 11 filing would mark a major development in its restructuring efforts, with implications for creditors, shareholders and customers across the forest-products supply chain.

As of the latest reports cited here, no Chapter 11 filing had been confirmed, and the outcome of the bondholder negotiations remained uncertain.