(Reuters) — Verso Corp, a leading U.S. producer of printing and specialty papers, filed for Chapter 11 bankruptcy on Tuesday to cut its debt as demand for its products has waned with the growth of electronic media and cheaper imports.
Verso, which is controlled by private equity firm Apollo Global Management, plans to seek approval for a plan that would shed $2.4 billion of its debt and cede ownership to its creditors, according to a company statement.
The company said the bankruptcy would have virtually no impact on its daily operations, and it is seeking to borrow up to $600 million through a debtor-in-possession or DIP loan to repay some debt and provide working capital.
Verso said it has support for the plan from a majority of its creditors in most classes of its debt.
That could smooth the restructuring process, which needs to be approved by a formal vote of creditors.
The Memphis, Tennessee-based company employs 5,172 at eight manufacturing plants in six states, according to a filing in the U.S. Bankruptcy Court in Wilmington, Delaware. It estimated 2015 revenue at $3.3 billion.
Verso’s products are used primarily in catalogs, magazines and glossy advertising brochures.
Verso’s DIP loan, a form of financing provided to companies in distress, will have to be repaid before debt owed to more junior creditors. As a result, some existing bondholders are likely to get only a few cents on the dollar, said Sharon Bonelli at credit rating agency Fitch Ratings.
“Verso’s relatively sizable $600 million DIP facility is one more indication that the company won’t be leaving much money on the table for bond creditors,” she said.
The company has proposed giving half its equity to holders of its roughly $1 billion of first-lien notes. Investors holding about $200 million of junior bonds will receive a combined 3 percent stake in the reorganized company, according to a securities filing.
Verso acquired NewPage Corp a year ago to increase its scale. However, the company has said merger-related savings were gobbled up by rising wood prices, falling prices for its products and competition from imports that benefit from a strong dollar.
Verso said in court papers it had about $3.9 billion in debt and assets worth about $2.9 billion.
Verso’s bankruptcy is the largest in the paper industry since NewPage filed in 2011. It emerged a year later.
Verso was acquired by Apollo in 2006 from International Paper, and went public in 2008. Its pink sheet stock was trading for less than a penny a share on Tuesday.