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Mercer International, Creditors in Confidential Talks Over Potential Liability Management Deal  

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✨ Summary by AI at Octus
Mercer International is in confidential discussions with certain bondholders regarding a potential liability management deal to improve economic terms for select lenders amid a liquidity crisis and weakening demand. The company, recently downgraded by S&P Global Ratings to CCC-, faces a shortfall of approximately $310 million needed to repay its ABL and revolving facilities due in 2027. Mercer has engaged financial and legal advisors to explore balance-sheet options, while a minority group of creditors has organized separately. The company reported $460.3 million in revenue for the second quarter of 2026, with liquidity at $191.7 million, but continues to face financial challenges.

Mercer International and certain bondholders are in confidential talks over a potential liability management deal that could offer better economics to select lenders, according to sources.

The terms of the transaction are not final yet, the sources said, as the producer of market pulp and solid wood products contends with an ongoing liquidity crisis amid weakening demand.
S&P Global Ratings downgraded the company to CCC- from CCC+ in August, citing a potential debt restructuring or a payment default in the next few months. Mercer lacks about $310 million in liquidity it needs in the near term to repay its ABL and two revolving facilities coming due in 2027.

Management added a going-concern warning to the company’s 10-Q, released on Aug. 6, noting that it is in discussions with holders of its senior notes and “other stakeholders” across the company’s capital structure regarding potential financing and “other liquidity-enhancing” transactions, although no agreement has been reached at the time.

Mercer has been working with Houlihan Lokey as financial advisor and Latham & Watkins as counsel to evaluate balance-sheet options, while an ad hoc group of creditors is working with Paul Weiss as legal advisor and signed onto a cooperation agreement earlier this year. A minority group of creditors has organized with Cadwalader and Jefferies, as reported.

Mercer International asked holders of its 2028 and 2029 bonds to remove payments for the consent provision, a move that will allow the company to bypass the equal treatment for its creditors when it seeks to strike a debt deal, Bloomberg reported in April.

The company booked $460.3 million of revenue in the second quarter of 2026, a 1.5% increase year over year. Operating EBITDA came in at negative $21 million compared with negative $20.9 million the year prior. Liquidity stood at $191.7 million, with $78.8 million in cash and $112.9 million undrawn revolver capacity. Meanwhile, the German revolver was reduced by €70 million.

An estimate of the company’s capital structure as of June 30, 2026, is shown below:
 

Mercer’s $875 million 5.13% unsecured notes due 2029 last exchanged hands at 35 on Sept. 2, according to MarketAxess.

Mercer, Latham & Watkins and Paul Weiss did not respond to a request for comment. Houlihan Lokey declined to comment.

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