United States | Being unable to refinance its debts, North American paper producer and recycler AbitibiBowater is filing for Chapter 11 bankruptcy protection in the US and Canada, succumbing to a constricted credit market and a steep drop in demand for newsprint, its primary product. The newsprint giant failed to refinance their debts before the deadline of Wednesday night.
The third largest paper company of the US said day-to-day operations will continue during the Chapter 11 restructuring. AbitibiBowater said it has entered into a US$200 million debtor-in-possession financing agreement with Fairfax Financial Holdings and Avenue Management. The company has a total debt of almost US$5 billion - US$2.9 billion from its Canadian division Abitibi-Consolidated and US$1.8 billion from its American division, Bowater. It is the second paper major in the US which is ready to collapse, after Smurfit Stone filed for bankruptcy in January.
'The announced decisions ensure business continuity for AbitibiBowater and were made only after all other viable options to recapitalize our long-term debt were exhausted,' CEO David Paterson said. 'The steps we are taking today and the vote of confidence given to us by our restructuring financial partners will enable us to protect the value of the business for our many loyal employees, customers, suppliers and other stakeholders,' he added.
Abitibi and Bowater merged two years ago amid a wave of consolidation in the forestry industry as companies grappled with higher fuel and raw materials costs.
Along with the economic headwinds that have stung the industry since then, the use of newsprint has fallen hard as more readers migrate to the Internet for their news. Deterioration in ad spending has also had a significant impact on newspapers and magazines, which have cut back on their page numbers and advertising inserts.
