Smurfit-Stone Container Shares Drop After Bankruptcy Rumor

By Beacon Staff

NEW YORK – Shares of Smurfit-Stone Container Corp., the largest producer of cardboard box materials in North America, plummeted more than 80 percent Thursday on reports it hired bankruptcy lawyers.

The Chicago-based company, which owns timberlands as well as wood-products production facilities, recently engaged a law firm and financial advisers with expertise in bankruptcy filings, The Wall Street Journal said, citing anonymous sources.

Specifically, Smurfit-Stone is seeking about $750 million in debtor-in-possession financing, the newspaper said. Also, the company advised lenders last week of its efforts to obtain debtor-in-possession financing.

A bankruptcy could be bad news for common shareholders as they often get little or nothing back on their investment once management seeks court protection from creditors. That’s because common shareholders’ call on company assets is typically less than that of bondholders and preferred shareholders.

The company, whose spokesman declined to comment on the bankruptcy report, is struggling to repay its debt, which at the end of the third quarter was $3.5 billion — nearly half its yearly revenue of roughly $7.5 billion.

Late last month, Buckingham Research analyst Mark Weintraub said he expected that Smurfit-Stone would breach its debt covenants, “unless extensions or modifications are granted.”

In Montana, about 385 people work at Smurfit-Stone’s linerboard plant in Frenchtown, said general manager Barry Doner. Another 50 or 60 were laid off in November when the company shut down one linerboard machine. That layoff has been extended at least through the end of January, officials said.

The current bankruptcy rumor did not surprise Wall Street.

“The (company’s) market cap has fallen below $100 million, and the bonds are trading at less than 20 cents on the dollar,” Deutsche Bank-North America’s Mark Wilde wrote Thursday in a client note. “This reflects its high debt levels, difficulties in refinancing, and deteriorating fundamentals.”

Wilde said the news highlights the distress in the debt-laden industry, which is facing growing pressure as volumes decline steeply.

“The other extremely heavily leveraged name in our space is AbitibiBowater,” Wilde said. “Other leveraged coverage names include Temple-Inland and International Paper, but we think that those two companies are in much better shape than Smurfit-Stone.”

Smurfit-Stone shares fell 30 cents, or 83.4 percent, to 6 cents, where they continued to trade Friday morning. In the past 52 weeks the shares have ranged from 5 cents to $9.99.

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