Mercer International filed for Chapter 11 in Houston on Nov. 9 to carry out a prepackaged plan that hands holders of its $1.275 billion of senior notes 91.5% of the reorganized company's common stock, according to an 8-K filed Nov. 10. Existing shareholders are left with 8.5% of the new common stock and 3.5% of the new convertible preferred.

The bankruptcy was telegraphed: Mercer announced the deal on Nov. 2. What is new is how one of the creditors underwriting it treated the old stock. Redwood Capital Management, a noteholder that signed both the restructuring support agreement and the backstop commitment, sold all 4,648,133 of its Mercer shares on Nov. 3, the day after the deal was announced, according to a Schedule 13D filed the day of the petition.

Those shares, about 6.9% of the 67.0 million outstanding, went at a weighted average of $0.2163, or roughly $1.0 million in all. Redwood sold into a rally: Mercer shares rose about 60% on Nov. 3, the first trading session after the announcement, and its average price was roughly two-thirds above the prior day's close. Redwood now reports owning none. The 13D does not say why it sold.

The plan also gives noteholders $150 million of new secured notes, 56.5% of $325 million of new convertible preferred stock, and the right to buy $420 million of new secured notes for $400 million in cash. Certain members of the majority noteholder group, Redwood among them, backstop that offering in exchange for a $56 million premium paid in extra notes. The disclosure statement says funded debt falls from about $1.6 billion to about $700 million, and annual cash interest drops by about $100 million from roughly $122 million.

Houlihan Lokey, Mercer's investment banker, values the reorganized company at $1.15 billion to $1.45 billion, which implies common equity of $181 million to $481 million. Using the midpoint of that range, the disclosure statement estimates noteholder recoveries of 38.2% to 58.1%, depending on whether a holder joins the rights offering, compared with 3% to 5% in a liquidation. It gives no recovery estimate for existing shareholders, who would get nothing in a liquidation. By FilingExplorer's arithmetic, their 8.5% of the common comes to $15 million to $41 million at the plan's value range, before dilution from a management incentive plan and preferred conversions, and only if the plan is confirmed and Mercer meets its projections; the disclosure statement cautions that its valuation is not a prediction of the new securities' market value. Their 3.5% of the preferred, $11.4 million at face value, comes on top of that. At Redwood's sale price, all of Mercer's existing shares were worth about $14.5 million.

Mercer skipped a $25.8 million interest payment due Oct. 1 on its 12.875% notes due 2028. Supplemental indentures signed Nov. 6 keep the bankruptcy filing from counting as an event of default only while the support agreement remains in force. Mercer's operating subsidiaries are not part of the case, and trade creditors are to be paid in full. Votes are due Dec. 10, and Mercer is targeting emergence by the end of 2026.