For Cerberus Capital, the bankruptcy marks an unwelcome return to negative headline land, coming barely a month after Innkeepers USA Trust sued the firm for backing out of its agreement to buy the hotel company for $1.1 billion. That transaction also puts Cerberus Capital up against Leon Black‘s Apollo Global, whose business development company affiliate,
Apollo Global and Avenue Capital held more than $400 million of the company’s $806 million of second-lien bonds, according to an April Bloomberg story on the company’s efforts to restructure its debt. Both firms already have investments in the space: Apollo controls Verso Paper, a Memphis, Tenn.-based coated paper producer it bought in 2006; while Avenue Capital is a lender to AbitibiBowater, a Montreal-based producer of coated and other forms of paper.
Despite the existential struggles facing the magazine industry, NewPage could be profitable if it had less debt, said Jonathan Friedland, an attorney with Levenfeld Pearlstein who works on distressed deals for sponsors. “The situation appears to be a classic balance sheet restructuring,” Friedland said. “I’m not suggesting the business is not in decline. Still, even dying businesses can be good to own for the right price.”
Friedland compared the NewPage situation to Musicland, the operator of Sam Goody music stores that Friedland advised in its 2006 Chapter 11 bankruptcy filing. “We closed many of the stores but sold the vast majority of the company to a strategic buyer,” Friedland said. “No doubt the buyer understood that the days of the mall record store were numbered. But it estimated what it thought the number would be and priced the purchase off that number. Once NewPage’s capital structure is rationalized, it can make money for a new owner.”
NewPage had sales of $1.8 billion in the first half of 2011, up slightly from a year earlier, according to securities filings cited by sister news service Reuters. It suffered a net loss of $220 million in the first half, narrower than the year-earlier loss of $349 million, Reuters reported.
Executives at Cerberus Capital declined to comment. Executives at Avenue Capital, Apollo Global and Oaktree Capital did not respond to requests for comment.