Nicole Gearhart/Associated PressA NewPage paper plant in Escanaba, Mich.
8:40 p.m. | Updated
The NewPage Corporation, the ailing papermaker owned by the private equity firm Cerberus Capital Management, filed for bankruptcy on Wednesday, blaming a sharp decline in the magazine industry, a spike in the cost of raw material and too much debt.
The company, which is based in Miamisburg, Ohio, and has 6,000 workers, will now operate under Chapter 11 bankruptcy protection while it restructures its balance sheet and seeks to slash its debt, which exceeds $3 billion.
The long-expected Chapter 11 filing in United States Bankruptcy Court in Delaware punctuates a painful investment for Cerberus, which borrowed heavily to acquire the MeadWestvaco paper mill business in 2005 for $2.3 billion and renamed it NewPage.
“The company’s current capital structure was put in place during a different time with different assumptions,” NewPage said in a statement.
NewPage is one of only several multibillion-dollar buyouts struck in the market boom — a list that includes the retailer Linens ’n Things, the music company EMI Group and the aluminum maker Aleris — that have ended in bankruptcy.
During the depths of the financial crisis, many private-equity watchers expected deep misery for the buyout firms that issued more than $1.5 trillion in debt to finance leveraged buyouts since 2003, according to Dealogic. But the number of bankruptcy filings was limited as the capital markets quickly recovered, allowing firms to shore up their companies by repurchasing debt or issuing new equity.
Still, Wednesday’s filing provides fodder for critics of the private equity industry who contend leveraged buyouts like the Cerberus takeover of NewPage destroy companies and jobs.
The NewPage filing is the second recent prominent legal case involving Cerberus, the New York investment firm that had ill-fated investments in GMAC and Chrysler. Last month, Cerberus was sued by Innkeepers USA Trust after it backed out of its $1.1 billion acquisition of the hotel company.
After being battered during the financial crisis, and suffering sizable redemptions in its hedge funds, Cerberus has had vast improvements. Among successful investments, the firm has made a killing buying distressed mortgages at the market bottom.
It has already written off its stake in NewPage, which has been a troubled investment from the start. Under private-equity ownership, NewPage, which specializes in coated paper for magazines, has shut factories and slashed jobs. The company operates 16 paper mills from Duluth, Minn., to Rumford, Me.
Cerberus brought in Robert Nardelli, the former head of Home Depot and Chrysler, last year as chairman to help turn the company around. He did not do so, and resigned in May.
NewPage alluded to another reason for the bankruptcy filing: the iPad. While not mentioning the Apple tablet or similar devices by name, the company’s bankruptcy papers cite “increases in the use of electronic data transmission and storage” and “an increased demand for electronic reading material.”
Now, several private-equity firms and hedge funds that own NewPage’s debt — the Avenue Capital Group, Apollo Global Management and Oaktree Capital Management among them — will fight in court to control the company.
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