Chesapeake in crucial week as refinance deadline nears

In a regulatory filing posted in November, Chesapeake said that it could seek Chapter 11 bankruptcy protection should it fail to put together a viable proposal. However, it insisted that its UK businesses would not be directly affected by the move if it happened.

The 10 December deadline was set just days earlier when the Virginia-based group and its creditors signed a forbearance agreement – effectively an extension – over the $250m credit facility.

A spokesman for the company insisted that Chapter 11  was “one of a number of possibilities” and said that if it went ahead, Chesapeake’s operating companies in Europe and elsewhere should continue to operate on a normal basis.

Chapter 11 is a legal process in the US that allows a company to operate as usual while it implements measures to address its financial problems.

Following the announcement, Chesapeake’s second biggest shareholder, German packaging group Edelmann, told Packaging News that further investment in the carton manufacturer had been put on hold.

Chief executive Dierk Schröder said that due to the “current unstable situation of the financial markets, decisions on further engagement and options by Edelmann would not be made at present”.

Edelmann, which has packaging operations in the UK, Poland, France and the US, had been rumoured to be planning a buyout of Chesapeake when it upped its stake in the firm to 13.4% at the end of September.

However, experts have said that the Chesapeake business remains strong, despite it being one of packaging’s biggest losers so far in the economic slump.

Europa Partners packaging specialist Nicholas Mockett said that although it looked “increasingly likely” that Chesapeake would enter into Chapter 11, it was “a good business” with products “that ought to be recession-proof”.

BPIF Cartons president John Monks added that “businesses have gone into Chapter 11 before and traded out of
it”, giving the example of Delta Airlines.

However, Tim Rothwell, packaging analyst at Lansdowne Capital, said that the firm had borrowed too much to fund recent
acquisitions.

“They are struggling to cope with their debt. The credit crunch has had massive affect, but even if the credit crunch hadn’t happened, this business has been in difficulties for a long time.”

A difficult autumn
*   26 September – German packaging firm Edelmann increases its stake to 13.4%, sparking takeover rumours
*    3 October – Chesapeake delisted from NYSE
*    4 November – Granted extension until December 10 to restructure $250m debt
*    13 November – Chesapeake says it is considering Chapter 11 bankruptcy protection
*    19 November – Edelmann puts further Chesapeake investment on hold
*    10 December – deadline to restructure $250m debt

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