UPDATE 2-AbitibiBowater terminates exchange offer

* Evaluating new restructuring alternatives

* To move forward on Abitibi-Consolidated recapitalization

* Shares down 19.5 pct at close (Adds background, analysts comments; editing by Rob Wilson)

By Euan Rocha

TORONTO, April 1 (Reuters) - Newsprint maker AbitibiBowater Inc ABH.N ABH.TO said on Wednesday it is evaluating new restructuring alternatives after the debt exchange offer for its Bowater subsidiary failed to get sufficient support from lenders.

Montreal-based AbitibiBowater had repeatedly extended the deadline for the $1.8 billion exchange offer in recent weeks, in the hope that it would get the requisite 97 percent support from short-term debtholders and 50 percent support from long-term holders.

"We are optimistic that we will be able to work constructively with all of our lenders, debtholders and other constituencies to successfully implement an alternative restructuring of our overall debt," Chief Executive David Paterson said in a statement.

The company said it plans to return all notes that had been tendered in favor of the proposed exchange offer.

All consents previously given by lenders with respect to the proposed amendments to the indentures for the notes will be deemed withdrawn and all funds submitted in connection with the concurrent notes offering will be returned without interest, the company said.

AbitibiBowater was created in 2007 in a combination of U.S.-based Bowater and Canada's Abitibi-Consolidated, but the companies did not entirely merge their respective financial structures and most of AbitibiBowater's debt is still held separately under its Abitibi-Consolidated and Bowater subsidiaries.

SLUMPING DEMAND

The largest North American newsprint maker has been hurt badly in recent months, as lower advertising revenue and the growing influence of the Internet have cut newsprint demand and forced many newspapers to seek bankruptcy protection.

The latest industry data indicates U.S. newsprint consumption fell 29.1 percent in February -- the 60th consecutive monthly drop and the steepest year-over-year comparison on record.

AbitibiBowater is also attempting to restructure $2.4 billion in debt held by its Abitibi-Consolidated unit, but this recapitalization plan was contingent on the successful completion of the Bowater exchange offer.

It said it plans to continue that recapitalization process and amend it as necessary to take into account the failure of the Bowater exchange offer. Previously announced meetings with creditors and anticipated implementation dates are expected to be postponed to later dates, it added.

There has long been concern in the investment community that AbitibiBowater might sacrifice either the Bowater or Abitibi operation in order to help the other unit survive, said Kevin Mason, an analyst with Equity Research Associates.

When the company was created, the feeling was that the Canadian operations associated with Abitibi-Consolidated might be sacrificed, but that may have changed now that the lower Canadian dollar has made them more competitive, he said.

Any filing for protection would create a great deal of uncertainty for the newsprint industry.

"As they say, when an elephant wanders off the path it does a lot of damage. And AbitibiBowater certainly is the elephant," Mason said.

If the company does file for bankruptcy protection, analysts are concerned that a court might order the company to keep its mills running in a bid to generate cash. But, this could flood the already over-supplied newsprint market and lead to a collapse in newsprint pricing.

Analysts believe that North American newsprint producers need to cut about 2 million tonnes of capacity this year just to remain viable.

Shares of AbitibiBowater closed down 19.5 percent at 66 Canadian cents on the Toronto Stock Exchange on Wednesday.

($1=$1.26 Canadian) (Reporting by Euan Rocha in Toronto and Allan Dowd in Vancouver, editing by Rob Wilson)