Mercer International downgraded to default after Chapter 11 filing
Mercer International enters Chapter 11 as a broader debt restructuring pushes the wood products and pulp producer deeper into financial distress. Fitch cuts the company's Long-Term Issuer Default Rating to 'D' from 'C', while keeping its senior unsecured notes at 'CC' with a Recovery Rating of 'RR3'.
Highlights
- Fitch downgraded Mercer International's rating to 'D' after a Chapter 11 filing, exchanging $1.1 billion of senior notes for equity and takeback notes.
- Fitch projects weak pulp markets through 2027, with increased Chinese supply and uncertain trade dynamics weighing on recovery and Mercer’s credit outlook.
- Mercer’s lumber operations remain near EBITDA breakeven; dividend suspension, restricted capex, and no share buybacks expected as liquidity and deleveraging are prioritized.
Restructuring terms and rating action
As reported by Fitch Ratings, the downgrade follows a recently announced restructuring agreement under which Mercer files for Chapter 11 bankruptcy protection. Fitch says it is likely to maintain the 'D' IDR during the court process and will reassess the company's capital structure, liquidity and risk profile after the restructuring is completed.Fitch says the agreement meets its definition of a distressed debt exchange because it imposes a material reduction in terms and helps avoid an eventual probable default. Under the plan, about $1.1 billion of Mercer's senior notes are exchanged mainly for common and preferred equity, while noteholders retain $150 million of takeback senior secured notes.
Market weakness weighs on recovery outlook
Fitch expects weakness in pulp markets to persist through 2027, with additional northern bleached softwood kraft supply in China continuing to pressure prices despite relatively stable demand. The agency says some capacity has gone offline, but not enough to materially improve pricing in the near term, while uncertainty around tariffs, trade flows and consumer demand adds volatility to Mercer's credit profile.Housing and construction markets also remain subdued, limiting recovery in the company's solid wood operations. Fitch says post-pandemic lumber price declines kept those operations below EBITDA breakeven in 2023 and 2024, and while pricing has recovered to near-breakeven levels, improvement is expected to remain gradual as elevated interest rates continue to restrain housing activity.
Against that backdrop, Mercer is prioritizing liquidity preservation and deleveraging. Fitch forecasts the dividend remains suspended through the forecast period, capital spending stays limited to maintenance needs, and no share repurchases are expected.
We have also looked at Hainan Rubber perpetual securities that Fitch rated BBB- amid its offshore debt refinancing plan.
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