Mercer weighs Chapter 11 protection after deferring $25.8 million interest payment
Key Facts
Pulp producer Mercer International is considering filing for Chapter 11 bankruptcy protection, according to a Reuters report citing Bloomberg, amid recapitalization talks and funding pressures. The company had announced in a filing with the U.S. Securities and Exchange Commission that it elected not to pay approximately $25.8 million in interest due on October 1, 2026. Mercer used a contractual 30-day grace period for that payment. It said using the grace period does not in itself constitute an event of default under the terms of the notes. Alongside the talks, it confirmed that its pulp, lumber and engineered wood businesses continue to operate "in the ordinary course," as do customer service and payments to suppliers, contractors and employees.
The negotiations cover notes carrying an annual interest rate of 12.875% due in 2028 and notes carrying an interest rate of 5.125% due in 2029, according to Mercer's filing. The principal of the nearer-maturing issue was $400 million, compared with $875 million for the subsequent issue, according to the debt schedule in the quarterly report as of the end of June 2026. Members of the bondholder group involved in the talks hold more than 75% of the aggregate outstanding principal of the two issues. The negotiations aim to recapitalize the company and inject capital, alongside reducing debt and the associated interest expense. However, the company warned that it could not guarantee a definitive agreement with bondholders.
The talks come after operating activities used $100.8 million in cash during the first half of 2026, according to the company's quarterly report. Total liquidity stood at $191.7 million on June 30, 2026. This included $78.8 million in cash and cash equivalents. The other component was $112.9 million in available borrowing capacity under revolving credit facilities, leaving most of its liquidity dependent on the ability to draw on credit lines. By comparison, Mercer had reported total liquidity of approximately $438.1 million at the end of June 2025.
Mercer reported a net loss of $76.0 million in the second quarter of 2026, according to its quarterly report. Operating earnings before interest, taxes, depreciation and amortization were negative $21.0 million for the same period. The results included a non-cash write-down of $29.0 million, primarily related to pulp and fiber inventories. The company linked the write-down to lower pulp prices and higher fiber costs. It attributed higher fiber costs at its German mills to regional supply shortages, as well as competition from energy producers for sawmill residuals used in production.
The restructuring of the Mercer Torgau facility includes an initial reduction of approximately 100 contractor jobs in July 2026, according to the quarterly report. This forms part of an expected total reduction of approximately 350 jobs at the facility. On its listing, Nasdaq granted the company an initial period of 180 calendar days in July 2026 to regain compliance with minimum bid price requirements, according to a separate filing. Compliance requires the stock's closing bid price to reach at least $1.00 for at least 10 consecutive business days. The Nasdaq notice does not mean the company's shares face imminent delisting.
Mercer faces a debt covenant test on December 31, 2026, as management expected it would fail to meet the leverage ratio required under its German facility at the end of that quarter, after the existing waiver expires. The facility's contractual maturity falls in September 2027. However, it was classified as a current liability because of the potential covenant breach and acceleration of repayment if the company does not obtain a waiver. The Canadian credit facility matures in January 2027, and Mercer expects a liquidity shortfall if it cannot refinance it. The company said this possibility raises substantial doubt about its ability to continue as a going concern.