March 9, 2009
by Canadian Packaging Staff
A heavy debt load and slumping sales have prompted corrugated boxmaking powerhouse Smurfit-Stone Container Corporation (SSCC) to file for bankruptcy protection in both the U.S. and Canada last month, with the Chicago-headquartered company—the largest corrugated producer in North America—hoping to restructure a debt load estimated at US$3.5 billion, or nearly half of its annual revenues of about US$7.5 billion.
The company says it expects to continue operations in both countries during the bankruptcy process—under the auspices of Chapter 11 provisions filed in the U.S. Bankruptcy Court in Wilmington, Del., and under the Companies’ Creditors Arrangement Act in Canada—having received commitments for up to US $750 million in debtor-in-possession financing to fund continuing operations.
Chairman and chief executive Patrick Moore says that restructuring its debt will enable SSCC to create a better capital structure.
”The acceleration of the unprecedented global economic recession has weakened demand for packaging, and the frozen credit markets have prevented an out-of-court refinancing of our capital structure,” states Moore.
”While this is not the outcome we anticipated, we are taking this action to become a more financially healthy company,” says Moore, adding that the boxmaker’s recent financial performance has fallen short of its potential “due to higher cost operations and burdensome debt levels dating back to the original formation of the company.”
More says that while the company had achieved progress in its three-year restructuring plan aimed at improving operating performance, “the acceleration of the unprecedented global economic recession has weakened demand for packaging, and the frozen credit markets have prevented an out-of-court refinancing of our capital structure.”
The drop in North American demand for consumer goods has been especially tough on SSCC, whose diverse clients include manufacturers of computers, high-definition televisions, pizzas, office furniture and other packaging-intensive products.
Like many other firms currently struggling with financial distress, SSCC is a heavily leveraged company, having borrowed money for acquisitions and capital spending that have left it short of financial resources needed to ride out the recession.
In Canada, SSCC employs over 2,600 people at 18 locations across the country, including mills, corrugated plants, specialty packaging facilities, and design centers operating under the Image Pac Graphics banner.