Capital Markets

Smurfit-Stone Boxes Itself into Chap. 11

Packaging and container company gets $750m in DIP financing. Hartmarx also files for protection.
Stephen TaubJanuary 26, 2009

Packaging and paper recycling company Smurfit-Stone Container Corp., recently rumored to be near a bankruptcy filing, took itself and its U.S. and Canadian subsidiaries into Chapter 11 in U.S. Bankruptcy Court.

The company, which said its Canadian subsidiaries also filed to reorganize under the Companies’ Creditors Arrangement Act in the Ontario Superior Court of Justice in Canada, said it had received commitments for up to $750 million in debtor-in-possession financing to fund continuing operations. Of this total, $350 million consists of new incremental funding, with about $400 million representing replacement of existing Accounts Receivable Securitization facilities both in the U.S. and Canada.

The Company said it plans to use the bankruptcy process to restructure its debt in a way that leaves its capital structure more suited to support long-term growth and profitability.

According to Bloomberg News, the company listed $5.6 billion in consolidated debt and $7.5 billion in consolidated assets as of Sept. 30. Of the debt, it had $3.5 billion in long-term debt at the end of the third quarter.

The company also noted at the end of the third quarter it had more than $2.7 billion in goodwill, or 36 percent of its total assets.

Smurfit said the DIP financing will enable it to continue paying employee wages and benefits and pay post-petition obligations to vendors under existing terms.

“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,” said Patrick J. Moore, chairman and CEO. “This combination of a modern, cost-effective operating platform and a reorganized capital structure through Chapter 11 will represent a new beginning for Smurfit-Stone.”

Smurfit-Stone is the latest among a growing number of pulp- and paper-related companies to file for bankruptcy, reflecting an overall slowdown in the economy as well as the huge decline in the print media industry. Corp. Durango SAB, Mexico’s largest papermaker, sought U.S. bankruptcy protection in October, while magazine printer Quebecor World Inc. and pulp-mill operator Pope & Talbot Inc. sought cross-border bankruptcies for their operations in the U.S. and Canada.

In other bankruptcy news, Hartmarx Corp. Friday announced that it and its domestic U.S. subsidiaries filed for Chapter 11. It also said its existing lenders have ratified and re-affirmed up to $160 million of pre-petition commitments as a debtor-in-possession (DIP) credit facility. The apparel maker, best known for its Hart Schaffner Marx, Hickey-Freeman, Palm Beach brands, said the filing is principally the result of “the substantial decline in discretionary apparel purchases by consumers” and by the company’s retail customers, particularly at the luxury price points, coupled with “the significant contraction” in borrowing capacity under the company’s senior credit facility.

“In addition, the contraction in the credit markets has precluded the company’s ability to obtain financing from alternative sources,” Hartmarx added in a press release. It also said it may sell substantially all of its assets. “We believe that today’s filing and our DIP financing provide us with sufficient funding and allows us to operate our business currently as we pursue strategic alternatives,” said Homi Patel, chairman and chief executive officer of Hartmarx.