Mercer defers $25.8 million interest payment amid advanced recapitalization talks
Key Facts
Mercer International elected not to make an interest payment of approximately $25.8 million due on October 1, 2026, amid advanced negotiations to reshape its capital structure, according to a filing with the U.S. Securities and Exchange Commission. The payment relates to the company's bonds due in 2028, while the talks cover the key terms of a comprehensive recapitalization transaction. Mercer said the transaction under discussion also includes a substantial capital injection. A committee of independent directors, alongside the company's advisers, is leading negotiations on its behalf. A group of bondholders is participating in the talks, placing the company's capital structure directly under negotiation with those creditors.
The negotiations follow a widening of the company's net loss to $76.0 million in the second quarter of 2026, according to its earnings release for the period. Mercer reported a net loss of $52.0 million in the first quarter of the same year, according to that quarter's results filed with the SEC. The company thus moved from a smaller quarterly loss to a larger one in the following period, as costs weighed on its results. Management attributed part of the pressure on second-quarter performance to higher fiber costs in Europe. On liquidity, the company reported total liquidity of approximately $191.7 million as of June 30, 2026. That compares with approximately $229.0 million as of March 31, 2026, meaning the decline in liquidity accompanied worsening losses during the second quarter.
In its quarterly report, Mercer warned of "substantial doubt about our ability to continue as a going concern." Restructuring concerns also extended to its credit rating, with Investing reporting that Moody's downgraded Mercer's corporate family rating to Caa3 from Caa1. According to the website, the rating agency's decision was based on the prospect of a distressed debt exchange or balance sheet restructuring. In its filing on the recapitalization talks, Mercer said its pulp, lumber and mass timber businesses remain operational. The company described those operations as "continuing to operate in the ordinary course," despite financial pressures and the recapitalization talks.
Against the backdrop of the company's financing position, Mercer announced Canadian government support for its Peace River mill combining a non-repayable contribution and a repayable contribution. The non-repayable contribution amounts to C$1 million, according to the company's statement on the support. The repayable contribution amounts to C$19 million, making it the larger part of the announced government package for the mill. The financing forms part of the Peace River support arrangements, with the financial obligations differing between the package's two components. The company set out the terms of the repayable contribution in its statement, with repayment scheduled to begin in 2031 under the contribution agreement.
As for the deferred interest payment, Mercer used the contractual 30-day grace period to allow time for payment during the recapitalization negotiations. The company affirmed in its filing that using the grace period "does not constitute an event of default" under the bond indenture. Upcoming maturities include the Canadian credit facility, which matures in January 2027, according to the company's quarterly report. That date places refinancing of the facility among the upcoming maturities alongside the recapitalization efforts. On staffing, Mercer Torgau expected to reduce its total workforce by approximately 350 positions under a phased initiative. According to the second-quarter earnings release, implementation of that initiative runs through the second quarter of 2027.