Chapter 11 for AbitibiBowater

AbitibiBowater, one of the largest public paper and forest products company in North America, announced today that it, along with certain of its U.S. and Canadian subsidiaries, have filed voluntary Chapter 11 petitions in the U.S. for bankruptcy protection.

What’s more, AbitibiBowater and certain of its Canadian subsidiaries will seek creditor protection under the Companies’ Creditors Arrangement Act (CCAA) in Canada. The company plans to file in Canada on April 17. AbitibiBowater’s subsidiaries located outside the U.S. and Canada have not commenced Chapter 11, CCAA or similar proceedings.

The company said in a release it’s concluded that “there are no viable alternatives to its previously announced proposed refinancing of its Bowater and Abitibi-Consolidated subsidiaries, and as a result, has determined that the best course of action is to pursue its overall restructuring under court supervision in the U.S. and Canada. Concurrently with its CCAA filing, the Abitibi-Consolidated subsidiary will request the termination of its previously announced recapitalization transaction under the Canada Business Corporations Act.”

The Chapter 11 filing allows the company to stay in business while a bankruptcy court supervises the reorganization of its debt obligations. AbitibiBowater plans to “use this process to deal decisively with its debt burden for the benefit of all stakeholders.” The company’s normal day-to-day operations will continue during the restructuring process.

The company also announced that it has entered into a financing commitment with Fairfax Financial Holdings Ltd. and Avenue Management for debtor-in-possession (DIP) financing totaling about $200 million for certain of its Bowater subsidiaries. In addition, its Abitibi-Consolidated subsidiary has entered into an amendment providing for the continuation of its existing securitization program for its accounts receivable, in the amount of about $210 million. These arrangements are subject to approval of the courts in both the U.S. and Canada and will allow the company to meet current operating needs, including wages, benefits and other operating expenses.

Montreal-based Abitibi Consolidated and Greenville, SC-based Bowater agreed to combine companies in an all-stock merger of equals in January 2007.

AbitibiBowater produces newsprint, commercial printing papers, market pulp and wood products. It is the eighth largest publicly traded pulp and paper manufacturer in the world. AbitibiBowater owns or operates 23 pulp and paper facilities and 30 wood products facilities located in the U.S., Canada, the U.K. and South Korea.

Dave Goldschmidt, vice president of marketing, catalog division for paper brokerage Strategic Paper Group thinks the company will likely be acquired by a private equity company or another mill. “They have some of the most efficient equipment out there, but certainly some capacity will be eliminated,” he says. “Once we see what happens, then we will know if it will have any effect on overall capacity or not.”

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