Paperlinx to clear up capital

Paper merchant makes offer to improve its terms of trade.

Paperlinx (PPX), the embattled paper merchant, is offering holders of its hybrid securities a 54% stake in the company as it tries to clear up a messy capital structure that has prevented restructuring.

The company says it will offer 250 Paperlinx ordinary shares for each hybrid security. This, it says, implies a price of about $14 per hybrid.

A total of $285 million hybrid securities were issued on March 30, 2007 when Paperlinx’s market value was about $1.7 billion. Since then the value of the hybrids has plunged to $37.2 million. Paperlinx’s market value is now $33.5 million.

“The uncertainty and complexity resulting from the hybrids, combined with the current trading performance of Paperlinx, typically leads to a more negative counterparty, credit assessment of the company by key stakeholders including customers, suppliers, employees and financiers,” said Paperlinx.

“A material reduction or removal of the hybrids may lead to an improvement in the company’s terms of trade thereby assisting in its turnaround,” the company added.

In its 2012 and 2013 financial year, Paperlinx has reported respectively a $266.7 million and a $90.2 million net loss.

The losses have prevented the company from being able to pay its hybrid security holders a dividend much to the consternation of hedge fund Coastal Capital, which has 12% of the hybrids and an investor group calling themselves Pigs, PXUPA Investor Group Supporters, which claims it holds between 25% and 50% of the hybrids.

“The removal or reduction of the hybrids may improve the company’s access to additional debt and equity capital,” Paperlinx says. “A protracted legal process and challenge is likely to materially disrupt and undermine the company’s operations and stakeholder and financier confidence.”

Moelis & Co and Baker & McKenzie are advising the company.