Mercer International has reached an agreement with its major creditors and shareholders on a restructuring plan aimed at significantly reducing its debt and providing US$400 million in new capital.

The plan will be implemented through a prepackaged Chapter 11 process in the United States, while the company's mills in Germany, Canada and the United States are expected to continue operating as usual.

The agreement addresses US$1.275 billion in existing senior notes, with approximately US$1.1 billion of this debt to be exchanged for equity in the reorganized company. This will reduce Mercer's existing senior note debt by approximately 88% and eliminate around US$96 million in annual cash interest payments.

The company will also raise US$400 million through an offering of new senior secured notes. The offering is fully backed by certain members of an ad hoc group of noteholders, providing additional liquidity to support Mercer's operations following the restructuring.

The agreement has received support from holders of more than 87% of Mercer's outstanding senior notes and a majority of its common shareholders.

Financial pressures

The restructuring follows a period of financial pressure for Mercer, which has been facing rising fiber and energy costs and persistent cash burn. The company had been negotiating with creditors as its cash reserves came under pressure.

In its second-quarter earnings, Mercer also cited tariff pressures, which it said were exacerbated by geopolitical conflicts in Ukraine and the Middle East.

The company faces a January 2027 maturity on its Canadian revolving credit facility and has warned that it is unlikely to generate sufficient cash flow to repay the facility without alternative funding or refinancing.

Mercer had also skipped the October 1 interest payment on its 12.875% senior notes due 2028. On October 30, the company extended the applicable grace period from 30 to 90 calendar days through a supplemental indenture.

Bloomberg had previously reported that Redwood Capital Management was acquiring Mercer's distressed debt, becoming one of its largest creditors and part of the majority group of bondholders.

Chapter 11 process

To implement the restructuring, Mercer International Inc. and its non-operating US subsidiary, Mercer International (Texas) LLC, plan to file prepackaged Chapter 11 cases under the US Bankruptcy Code and submit a plan of reorganization to the US Bankruptcy Court for the Southern District of Texas.

The prepackaged process is based on restructuring terms already agreed with the majority of the company's noteholders and shareholders. Confirmation of the reorganization plan is expected within approximately 45 days of filing, with the overall restructuring targeted for completion by the end of 2026, subject to customary conditions, including any required regulatory approvals.

Mercer said the Chapter 11 process will not affect the ordinary course of its business. Its operating businesses will continue to serve customers, pay suppliers and meet employee wages and benefits without interruption.

Trade creditors and other general unsecured creditors will continue to be paid in full, either on the effective date of the reorganization plan or in the ordinary course of business.

The company also expects to repay, in whole or in part, its existing credit facilities and establish new revolving credit facilities providing up to US$300 million in aggregate commitments.

Impact on shareholders

Existing shareholders will retain a stake in the reorganized company. They are expected to receive approximately 8.5% of its new common stock and 3.5% of its new convertible preferred stock.

However, the existing common stock will be cancelled when the reorganization plan takes effect and replaced by the new securities. Mercer expects to receive notice from Nasdaq that the exchange has determined to delist its existing common stock following the Chapter 11 filing.

If trading is suspended, the shares may be quoted on an over-the-counter market, although Mercer said there is no guarantee that an active trading market will exist.

Following completion of the restructuring, the company intends to apply to list its new common stock on Nasdaq or another national securities exchange, subject to meeting the applicable listing requirements.