Corporacion Durango seeks creditor protection; unit sale
NEW YORK, Oct 7 (Reuters) - Mexican paper producer Corporacion Durango (CODUSA.MX) has filed for protection from U.S. creditors in a New York bankruptcy court and plans to sell its U.S.-based McKinley Paper Company unit as it struggles with higher raw material costs and the U.S. economic downturn.
The company filed for bankruptcy in Mexico on Oct. 6, then filed a Chapter 15 petition before the U.S. bankruptcy court for the Southern District of New York, which helps shield a foreign company from U.S. creditors while it reorganizes.
At the same time, Durango's U.S. holding company, Paper International Inc, and a U.S. subsidiary, Fiber Management of Texas Inc, also filed for Chapter 11 bankruptcy protection.
Court documents cited the rising cost of energy, the downturn of the U.S. economy, increased foreign competition and the appreciation of the Mexican peso as the headwinds facing the company.
Durango manufactures containerboard at paper mills in Mexico and the United States. The containerboard is used for corrugated containers and paper bags.
The largest creditors are the holders of Corporacion Durango senior notes, said Durango's attorney John Cunningham of White & Case LLP. The principal amount of those notes is $520 million of 10.5 percent senior notes due 2017, he said.
"The holders have not identified themselves," Cunningham said. "We believe the bondholders are discussing getting organized now."
UNIT SALE
Durango also plans to sell its U.S.-based McKinley paper company and is negotiating with potential buyers of those assets, according to Cunningham.
Cunningham declined to name the potential bidders but said a U.S. buyer was interested.
McKinley is not in bankruptcy, Cunningham said, adding that "We believe the offer we'll get for the U.S. assets will be significant," without giving further details.
Durango's U.S. filing listed more than $1 billion in assets and liabilities, while its U.S. holding company, Paper International, listed assets of between $100 million and $500 million and liabilities of between $500 million and $1 billion.
The company tapped U.S. restructuring adviser Alix Partners to help lead the reorganization of Paper International and Fiber Management and act as chief restructuring officer.
Other paper-related companies have struggled with the economic slowdown, including the largest North American newsprint maker AbitibiBowater Inc ABH.N. In August the company posted a second-quarter loss, hurt by poor results from its newsprint, specialty papers and wood-products businesses. (Editing by Maureen Bavdek)
