On Wednesday, September 7, the NewPage Corporation came to
the conclusion that filing bankruptcy was their only solution for financial
difficulties due to a sharp decline in the magazine industry. Other factors
that attributed to the bankruptcy filing were the cost of raw materials and being
plagued with too much debt.
The Miamisburg Ohio company that employs 6000 workers will
continue to stay open under Chapter 11 bankruptcy restructuring. They believe
that filing bankruptcy will allow them to slash their $3 billion debt while restructuring their balance sheets.
It seems this bankruptcy filing has been long expected and
highlights bad investments for Cerberus. In 2005, Cerberus borrowed heavily to
purchase MeadWestvaco paper mill for a price of $2.3 billion and renamed it NewPage.
At the height of the financial crisis, many private equity
lenders expected problems for the firms that issued one and a half trillion
dollars in debt to finance leveraged buyouts. There were less companies filing
bankruptcy than expected as the markets recovered quickly which allowed these
firms to shore up their companies by buying back debt or issuing new equities.
Although Cerberus, has been battered by bad investments in GMAC
and Chrysler, they have made a killing by distressed mortgages at the market
bottom. The company has already written off its investment in NewPage as has
been the dog from the start. NewPage also commented that they believe another
reason for the bankruptcy filing was the introduction of the iPad. They believe
more people are using an electronic medium for reading materials.