Smurfit-Stone, Cardboard Maker, Files for Bankruptcy (Update2)
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By Dawn McCarty and Tiffany Kary
Jan. 26 (Bloomberg) -- Smurfit-Stone Container Corp., a maker of cardboard packaging and one of the world’s largest paper recyclers, filed for bankruptcy in the face of falling demand and heavy debt payments.
The petition for Chapter 11 bankruptcy, filed today in a U.S. Bankruptcy Court in Wilmington, Delaware, listed $5.6 billion in consolidated debt and $7.5 billion in consolidated assets as of Sept. 30. Twenty-four affiliates also sought protection.
The company joins other pulp- and paper-related bankruptcies as rising Internet use hurts magazines and newspapers. Corp. Durango SAB, Mexico’s largest papermaker, sought U.S. bankruptcy in October. Quebecor World Inc., a magazine printer, and Pope & Talbot Inc., a pulp-mill operator, also sought cross-border bankruptcies for their operations in the U.S. and Canada.
“The acceleration of the unprecedented global economic recession has weakened demand for packaging, and the frozen credit markets have prevented an out-of-court refinancing of our capital structure,” Patrick J. Moore, chairman and chief executive officer of Chicago-based Smurfit-Stone, said in a statement. “While this is not the outcome we anticipated, we are taking this action to become a more financially healthy company.”
Smurfit-Stone, is North America’s second-largest maker of corrugated packaging, and has 22,000 employees in the U.S., Canada, Mexico and Asia, according to its Web site. Operations outside of the U.S. and Canada are excluded from the bankruptcy process, the company said.
Debt Levels
Smurfit-Stone’s 30 largest consolidated creditors without collateral backing their claims are owed about $4.2 billion, court papers show. The Bank of New York, as agent for bondholders, has an unsecured claim of $2.2 billion, CIT Group Inc. is owed $36.8 million and British Petroleum is owed $22.1 million, according to court papers.
Rivals AbitibiBowater Inc., Temple-Inland Inc. and International Paper Co. also have significant debt, according to Mark Wilde, an analyst at Deutsche Bank Securities in New York.
In December, Smurfit-Stone said fourth-quarter earnings would be “significantly” lower than the previous period, citing slowing demand for containers for industrial and consumer goods. It said it would reduce production of containerboard and some types of paper.
Credit Ratings
Credit-rating companies Moody’s and Standard & Poor’s downgraded their ratings on Smurfit-Stone’s debt shortly thereafter. Both said the company could be required to get waivers on its debt covenants.
Smurfit-Stone has an $800 million revolving credit facility due Nov. 2009. Moody’s also rates an estimated $3.5 billion in debt, and noted in December that the company could need to get waivers on some of its covenants to maintain access to the revolver.
Containerboard and corrugated containers are Smurfit-Stone’s main products, and it collects recycled paper as a raw ingredient through 27 recycling plants. Its net sales were $7.4 billion in 2007, and a three-year program designed to make mills more productive is slated to finish in the first half of this year, according to the company’s Web site.
The case is Smurfit-Stone Container Corp., 09-10235, U.S. Bankruptcy Court, District of Delaware (Wilmington).
To contact the reporters on this story: Dawn McCarty in Wilmington, Delaware at dmccarty@bloomberg.net; Tiffany Kary in New York Bankruptcy Court at tkary@bloomberg.net.
Last Updated: January 26, 2009 06:02 EST