(Adds details on company advisers and layoffs, rewrites lead, adds byline)
By Chelsea Emery
NEW YORK, Jan 26 (Reuters) - Smurfit-Stone Container Corp SSCC.O, one of the largest U.S. corrugated packaging makers, said on Monday that its U.S. and Canadian operations filed for Chapter 11 bankruptcy protection, hurt by declining packaging demand.
“The recent downturn in the global economy has resulted in an unprecedented decline in demand for the company’s products, leading to increased inventory levels and downward pressure on the company’s operating income,” Chief Financial Officer Charles Hinrichs said in documents filed with the U.S. Bankruptcy Court in Delaware.
The company, which makes pizza boxes, “clamshell” packages for the food industry and pulp for shopping bags, joins other packing-related companies in bankruptcy court. Paperboard and plastic packaging maker Chesapeake Corp CSKEQ.PK and Constar International Inc CNSTQ.PK have filed for bankruptcy protection in the past four weeks.
“Sales in a lot of industries are down and it’s not surprising that containers that products are shipped in would be affected,” said Stuart Hirshfield, a partner specializing in bankruptcy law at Mintz Levin Cohn Ferris Glovsky and Popeo PC. “If people aren’t buying, anyone along the product chain gets affected.”
The manufacturer had assets of $7.45 billion and debt of $5.58 billion as of Sept. 30. It employs more than 20,000 people worldwide and operates 162 manufacturing facilities, including paper mills and container plants.
The company plans to cut another 1,000 jobs and close about six more plants, as part of a scheduled cost-reduction plan announced previously, said spokesman John Haudrich.
The cost-cutting program is proceeding as planned, said Haudrich, adding that it is too early to say whether additional job cuts or plant closures will occur.
The company said it has received commitments for up to $750 million of debtor-in-possession financing to fund continuing operations. The DIP financing is pending court approval.
Of this total, $350 million consists of new incremental funding and $400 million represents the replacement of existing accounts receivable securitization facilities, both in the United States and Canada, the company said in a statement.
Before its bankruptcy filing, Smurfit-Stone had contacted 25 potential lenders for out-of-court financing aid, but its high debt load and the tight lending environment caused it to seek DIP financing instead, it said in court filings.
The company has an $800 million revolving credit facility due to mature on Nov. 1.
“Leverage is a very, very difficult thing in this environment because if sales come down, you still have your overhead,” said Hirshfield.
Smurfit-Stone is the No. 1 North American supplier of white top linerboard, the outer paper on a corrugated carton used for produce boxes and displays, according to its website.
The company, which is also one of the world’s largest paper recyclers, said it would also file to reorganize under the Companies’ Creditors Arrangement Act in the Ontario Superior Court of Justice in Canada.
Day-to-day operations will continue without interruption, and all its operations outside of the United States and Canada were excluded from the bankruptcy process, the company said.
Sidley Austin LLP is advising the company in the United States, while its Canadian counsel is Stikeman Elliott LLP. Lazard has been hired as financial advisor.
The case is In re Smurfit-Stone Container Corp, US Bankruptcy Court, for the District of Delaware, No. 09-10235. (Reporting by Chelsea Emery in New York and Bijoy Koyitty in Bangalore; Editing by Gerald E. McCormick and Lisa Von Ahn)