(Updated to reflect Norske Skog’s latest statement in response to Aker and Oceanwood approach)
By Christopher Spink
LONDON, Nov 23 (IFR) - Norske Skog said “a consensual recapitalisation” of the company is unlikely after Norwegian industrial investment company Aker and the ailing pulp and paper producer’s most senior creditors said they were willing to make an offer for its operating assets.
The directors of Norske Skog’s parent company, Norske Skogindustrier, said this development meant it was now “likely to initiate insolvency proceedings”.
Earlier on Thursday the company said it wanted to launch a renewed exchange offer to its various creditors “as soon as possible”. It had also reassured stakeholders that it had sufficient cash “to support the operations until a recapitalisation solution takes place”.
Now the directors said they will “continue to assess the situation and the implications of the recent developments”.
Norske Skog first tried to launch a debt-for-equity offer in June with support from holders of its €290m senior secured notes but various holders of junior classes of notes and other debt facilities, which also need to back any deal, have withheld their support.
At the start of this month, the company said it had formally withdrawn its latest consent solicitation plan but said “meaningful progress” had been made with holders of a €100m non-secured finance facility and the majority holder of its 2115 perpetual notes about reaching an acceptable deal.
These were the last two classes of creditors yet to give their support.
Other junior noteholders had pledged their support the previous month to a plan that would see existing shareholders’ holdings reduced to 2.5% of the equity, secured noteholders taking 90.75% and unsecured noteholders receiving 6.75% through debt-for-equity swaps.
Oceanwood Capital, which owns the majority of the senior secured notes, said it had made a backstop bid, together with Norwegian oil services investor Aker Capital, to buy the company’s seven paper mills.
Such an auction is likely to occur should a creditor deal not be reached and the company be liquidated instead. The Norske Skogindustrier board has now admitted this is likely.
Under the latest proposed exchange offer, the senior secureds were to have been offered a majority stake in the equity. Junior creditors had previously objected that this unfairly gave the senior secureds a greater return than the nominal value of their claims due to them.
The company said its third-quarter Ebitda fell 25% to NKr143m (€14.3m), compared with the previous three months. Its net loss narrowed to NKr9m from Nkr546m due to the positive impact of currency movements on its debt, changes in the value of power contracts, and the decision not to pay debt interest.
However, cashflow was a negative NKr162m compared with a positive Nkr187m in the second quarter. At the end of September, the group had NKr426m of cash but a negative book value of NKr689m.
The company said: “Both Norske Skog’s margin improvement program and the diversification strategy cannot be fully implemented before the group’s recapitalisation is in place.”
Aker is the investment vehicle of Kjell Inge Rokke and has interests in oil services company Aker Solutions and oilfield construction group Kvaerner. “It would be a new industrial portfolio, and diversification of our portfolio,” said Aker chief executive Oyvind Eriksen. It also reported third-quarter figures on Thursday.
“Even in a declining market there will be demand for Norske Skog’s products and the winner in that market is the most efficient producer. So that’s what it’s all about,” said Eriksen.
Oceanwood confirmed its participation in the possible joint offer with Aker but did not comment further on the details of the development. Neither did Aker say any more about the financial details of the plan or under what circumstances it would be made.
Norske Skog shares initially jumped on the news but closed down 59% at NKr0.29. (Reporting by Christopher Spink)