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Rating Action:

Moody's downgrades Verso Paper's PDR to Caa2-PD and bonds subject to exchange to Caa3

08 Jan 2014

Approximately $1.4 billion of debt securities affected

NOTE: On June 01, 2014, the press release was revised as follows: In the Regulatory Disclosures section, added the Canada Ancillary Disclosure as the fourth paragraph. Revised release follows.

Toronto, January 08, 2014 -- Moody's Investors Service downgraded Verso Paper Holdings LLC's ("Verso") probability of default rating (PDR) to Caa2-PD from B3-PD and the $396 million second-lien notes due 2019 and $143 million subordinated notes due 2016 to Caa3 from Caa2. In addition, Moody's placed all of the company's ratings under review with direction uncertain. The revised ratings and review was precipitated by the company's announcement of a debt exchange offer in connection with an agreement to acquire NewPage Corporation (NewPage) (B1 under review for downgrade) in a transaction valued at $1.4 billion.

Downgrades:

..Issuer: Verso Paper Holdings LLC

.... Probability of Default Rating, Downgraded to Caa2-PD from B3-PD; Placed Under Review Direction Uncertain

....Senior Subordinated Regular Bond/Debenture Aug 1, 2016, Downgraded to Caa3 from Caa2; Placed Under Review Direction Uncertain

....Senior Secured Regular Bond/Debenture Feb 1, 2019, Downgraded to Caa3 from Caa2; Placed Under Review Direction Uncertain

On Review Direction Uncertain:

..Issuer: Verso Paper Holdings LLC

.... Corporate Family Rating, Placed on Review Direction Uncertain, currently B3

....Senior Secured Bank Credit Facility May 4, 2017, Placed on Review Direction Uncertain, currently Ba3

....Senior Secured Bank Credit Facility May 4, 2017, Placed on Review Direction Uncertain, currently Ba3

....Senior Secured Regular Bond/Debenture Aug 1, 2014, Placed on Review Direction Uncertain, currently Caa2

....Senior Secured Regular Bond/Debenture Jan 15, 2019, Placed on Review Direction Uncertain, currently B3

....Senior Secured Regular Bond/Debenture Jan 15, 2019, Placed on Review Direction Uncertain, currently Ba3

Outlook Actions:

..Issuer: Verso Paper Holdings LLC

....Outlook, Changed To Rating Under Review From Negative

RATINGS RATIONALE

The PDR downgrade and the downgrade of Verso's second-lien notes due 2019 and subordinated notes due 2016 was prompted by the company's announcement of a debt exchange offer that could occur at a significant discount to the face value of the existing notes. Verso has offered to exchange new second-lien notes and new subordinated notes for all of the company's outstanding $396 million second-lien notes due 2019 and $143 million subordinated notes due 2016, respectively. Prior to the consummation of the acquisition of NewPage, the new second-lien notes and new subordinated notes will have substantially the same terms as the existing notes. Upon closing of the acquisition, the principal amount of the outstanding new second-lien notes will be reduced to 47 cents on the dollar and the principal amount of the outstanding new subordinated notes will be reduced to 57 cents on the dollar. The exchange offer is expected to be launched next week and will be conditional upon holders of a certain (to be determined) percentage of the existing notes tendering to the exchange offer. If the exchange and merger proceeds, it will constitute a distressed exchange, which is an event of default under Moody's definition of default, and the /LD limited default indicator will be appended to the PDR for three business days.

.

Moody's review will focus on: the proposed capital structure and the anticipated operating and financial performance of Verso, NewPage and the combined company; the integration process and the ability to move funds within the combined company; and the size, pace and allocations of realizable cost synergies. It is anticipated that following the acquisition, Verso and NewPage will be run as separate legal entities with a shared services agreement. The review will assess liquidity arrangements and the combined company's business prospects in the challenging coated paper industry which is experiencing secular decline.

If the merger closes and Verso is able to successfully integrate the operations of NewPage, improve its ability to cope with the declining coated paper industry through improved management of operating capacity and obtain significant synergies, Verso's CFR and PDR might be upgraded. If the debt exchange and acquisition do not close, or if Moody's anticipates that Verso will face significant challenges in integrating NewPage, Verso's CFR and PDR may be downgraded.

The principal methodology used in this rating was the Global Paper and Forest Products Industry published in October 2013. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Memphis, Tennessee, Verso is the second largest coated paper producer in North America with 8 paper machines at three paper manufacturing mills.

Headquartered in Miamisburg, Ohio, NewPage, a private company, is the largest coated paper producer in North America with 15 paper machines at 8 paper manufacturing mills.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Moody’s has not provided advisory services but may have provided Ancillary or Other Permissible Service(s) to the rated entity, its related third parties and/or the party that requested the rating within the past two years (including during the most recently ended fiscal year). Please see the special report “Ancillary or other permissible services provided to entities rated by MIS’s credit rating agency in Canada” on the ratings disclosure page www.moodys.com/disclosures on our website for further information.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ed Sustar
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
(416) 214-1635

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Moody's downgrades Verso Paper's PDR to Caa2-PD and bonds subject to exchange to Caa3
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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