Mercer International - Chapter 11 Case Summary

Mercer International filed for Chapter 11 citing lower pulp prices, rising fiber costs, leverage from its expansion into solid wood and mass timber, and approaching maturities on its subsidiaries' secured credit facilities. Its prepackaged plan, supported by holders of more than 87% of the senior notes, would cut funded debt from about $1.6 billion to about $700 million, principally by cancelling its $1.3 billion of senior notes. A noteholder-backstopped rights offering would provide up to $400 million of new liquidity, and the Debtors intend to fund the cases with unencumbered cash rather than DIP financing.

Business Description

Vancouver-based Mercer International Inc. (NASDAQ: MERC) ("Mercer") and its wholly owned subsidiary Mercer International (Texas) LLC ("Mercer Texas" and, together with Mercer, the "Debtors"), together with their non-Debtor affiliates (collectively, the "Company"), make up a forest products group. The group processes wood into products used primarily in paper, packaging, and construction, and has significant operations and assets in the United States, Canada, and Germany. The Company generated approximately $460 million of revenue in the second quarter of 2026, compared with approximately $454 million in the second quarter of 2025.

The Company has two segments. The Pulp Segment produces market pulp at four mills in Germany and Western Canada, chiefly northern bleached softwood kraft (NBSK) pulp, a premium grade sold primarily to tissue and paper producers. The Solid Wood Segment produces lumber, wood pallets, and engineered mass timber products at two German sawmills and three North American facilities. The pulping and sawmilling operations also generate electricity from biofuels, and the Company sells the surplus to third-party utilities and into regional electricity markets.

Only the holding level is in Chapter 11. Mercer is the publicly traded parent. Mercer Texas was formed shortly before the Debtors filed for Chapter 11 on November 9, 2026 (the "Petition Date"). Neither Debtor has direct business operations or employees. The business runs through non-Debtor affiliates that are not part of the cases.

Corporate History

Origins and Pulp Platform

Mercer was organized in 1968 as a Washington business trust. It originally invested in real estate, intending to become a real estate investment trust. In 1985 it changed direction and began acquiring controlling interests in operating companies. It entered the pulp business in 1994 by acquiring the Rosenthal mill in Germany and converted that mill to kraft pulp production in 1999. The Company then built the Stendal mill in Germany, which began operating in 2004 after an investment of approximately $1.1 billion. In 2005 it acquired the Celgar mill in British Columbia for approximately $210 million. On March 1, 2006, Mercer converted from a business trust to a Washington corporation through a series of merger transactions. In December 2018, Mercer acquired Mercer Peace River through a share purchase valued at approximately $344 million. The deal added the Peace River pulp mill in Alberta, a 50% interest in the Cariboo pulp mill in British Columbia, and related forestry assets.

Solid Wood and Mass Timber Expansion

Mercer entered the solid wood business in April 2017 by acquiring the Friesau sawmill in Germany for approximately $61.6 million. In August 2021 it entered the North American mass timber market, buying a cross-laminated timber (CLT) production facility near Spokane, Washington for approximately $51.3 million. CLT is an engineered wood product used in building construction. In September 2022, Mercer acquired the Torgau facility in Germany through a share purchase for approximately $263.2 million. Torgau is an integrated sawmill and value-added manufacturing site that produces lumber, wood pallets, biofuels, and green energy. In June 2023, Mercer acquired substantially all of the assets of a Structurlam entity for approximately $82.1 million. The assets included a mass timber facility in Conway, Arkansas and three British Columbia facilities that Mercer later combined into its Okanagan facility, adding CLT and glulam capacity.

Corporate Structure and Governance

Mercer is the ultimate parent of the group and directly or indirectly owns nine material operating subsidiaries, none of which is a Debtor. Although Mercer is a holding company, it is the group's principal financing entity and issues both the publicly traded common stock and the group's two series of senior unsecured notes. Mercer is governed by a nine-member Board of Directors (the "Board") chaired by William D. McCartney. President and Chief Executive Officer Juan Carlos Bueno also sits on the Board, together with Thomas Kevin Corrick, Alice Laberge, Janine North, Rainer Rettig, James Shepherd, Markwart von Pentz, and Linda J. Welty.

Operations Overview

The Company makes its pulp and solid wood products at nine facilities in the United States, Canada, and Germany, all owned through non-Debtor subsidiaries.

Pulp Segment

The Pulp Segment makes, sells, and distributes pulp, green electricity, and bio-chemicals at four mills. Two are NBSK mills in Germany (Rosenthal and Stendal). The other two are in Western Canada: the Celgar NBSK mill and the Peace River "swing" kraft mill, which can produce both softwood and hardwood kraft pulp. The mills also operate as bio-refineries, generating electricity from biofuels produced during pulping. That power supports mill operations, and the surplus is sold to third-party utilities or into regional electricity markets. The first day declaration of Chief Financial Officer Richard Short (the "Declaration") describes this electricity as a supplemental revenue source unrelated to pulp or lumber prices.

Solid Wood Segment

The Solid Wood Segment makes, sells, and distributes lumber, engineered wood products, wood pallets, electricity, biofuels, and wood residuals. Production comes from the German sawmills at Friesau and Torgau and the North American mass timber facilities at Spokane, Conway, and Okanagan.

Lumber, including dimensional, specialty, and other finished sawn lumber, is sold primarily to national and regional distributors, construction firms, secondary manufacturers, retail yards, and home centers in the United States, Europe, and Asia. The segment's pallets include Euro-pallets for customers primarily in Europe. Its engineered wood products include CLT, glulam, and finger joint lumber; CLT and glulam are used in residential and commercial construction. Wood residuals are used internally, sold to third parties, or turned into pellets and briquettes.

Revenue Mix

Second-quarter 2026 revenue broke down by product as follows:

Revenue for the twelve months through the second quarter of 2026 was approximately $1.86 billion. In the first half of 2026, approximately 29% of external revenue came from China, 27% from Germany, 16% from the United States, and 28% from other countries.

Facilities

FacilityLocationBuilt / AcquiredProducts and Annual CapacityOwner
RosenthalRosenthal am Rennsteig, GermanyBuilt 1883; acquired 1994NBSK pulp; 360,000 ADMTsMercer Rosenthal GmbH
StendalArneburg, GermanyBuilt 2004NBSK pulp; 740,000 ADMTsMercer Stendal GmbH
CelgarCastlegar, British ColumbiaBuilt 1960; acquired 2005NBSK pulp; 520,000 ADMTsMercer Celgar Limited Partnership
Peace RiverPeace River, AlbertaBuilt 1990; acquired 2018Softwood and hardwood kraft pulp; 475,000 ADMTsMercer Peace River Pulp Ltd.
FriesauFriesau, GermanyBuilt 1992; acquired 2017Lumber; 550 MMfbmMercer Timber Products GmbH
TorgauTorgau, GermanyBuilt 1999; acquired 2022Lumber, wood pallets, and biofuels; approximately 473 MMfbm of lumber, 17 million pallets, and 230,000 tonnes of biofuelsMercer Torgau Holding GmbH
SpokaneSpokane Valley, WashingtonBuilt 2019; acquired 2021CLT; 140,000 m³Mercer Spokane LLC
ConwayConway, ArkansasBuilt 2021; acquired 2023CLT and glulam; 75,000 m³Mercer Conway Inc.
OkanaganOkanagan Falls/Penticton, British ColumbiaAcquired 2023CLT and glulam; 40,000 m³ (aggregate)OK Laminators Inc.

Pulp capacity is stated in air-dried metric tonnes (ADMTs) and lumber capacity in millions of board feet (MMfbm).

Workforce

The Company employs approximately 3,500 people across its pulp mills, sawmills, mass timber facilities, and corporate functions: approximately 2,310 in Germany, 1,070 in Canada, and 145 in the United States. All of them are employed by non-Debtor affiliates. Accrued and unpaid obligations under the short-term incentive plan total no more than $1.7 million, which the Company intends to pay in the ordinary course at emergence.

Prepetition Obligations

As of the Petition Date, the Company had approximately $1.6 billion of funded debt. Substantially all of the Debtors' funded debt is Mercer's two series of unsecured notes (the "Senior Notes"), totaling approximately $1.3 billion. All of the Company's secured debt sits at non-Debtor operating subsidiaries. Neither Debtor is a borrower or guarantor under any of those facilities, and the proposed restructuring leaves them unimpaired.

InstrumentObligorRate / MaturityPrincipal Drawn / Outstanding (USD millions)
Canadian ABL FacilityNon-DebtorMatures January 21, 2027$80.8
German RCFNon-DebtorMatures September 15, 2027$287.0
Total funded secured debt$367.8
2028 Senior NotesDebtor12.875%, due October 1, 2028$400.0
2029 Senior NotesDebtor5.125%, due February 1, 2029$875.0
Total funded unsecured debt$1,275.0
Total funded debt$1,642.8

Canadian dollar amounts are converted at 1 CAD = 0.7086 USD and euro amounts at 1 EUR = 1.1165 USD.

Senior Notes

Both series of Senior Notes are senior unsecured obligations of the Debtors. Mercer issued them, Mercer Texas guarantees them, and no non-Debtor affiliate guarantees them. Computershare Trust Company, N.A. is trustee under both indentures.

The 2028 Senior Notes were issued under an indenture dated September 21, 2023. At the Petition Date they carried approximately $400 million of principal and approximately $31.6 million of accrued and unpaid interest. The 2029 Senior Notes were issued under an indenture dated January 26, 2021, for which Computershare serves as successor trustee. They carried approximately $875 million of principal and approximately $12.2 million of accrued and unpaid interest.

Non-Debtor Facilities

Events Leading to Bankruptcy

The Debtors attribute their distress to a combination of factors, including:

Acquisition Program and Leverage

The Company began expanding beyond pulp before the COVID-19 pandemic. It accelerated that strategy from 2021, investing in solid wood and mass timber while U.S. and European lumber demand and prices were strong. The acquisitions described in Corporate History represented approximately $803 million of aggregate consideration between 2017 and 2023. From 2021 through 2023, Mercer invested approximately $396.6 million in solid wood acquisitions, and the Company also spent approximately $96.3 million on Solid Wood Segment capital expenditures to increase production, lower costs, and improve efficiency.

Mercer issued $350 million of notes to finance the 2018 Peace River acquisition. In 2022 it borrowed approximately $115.3 million under its revolving credit facilities to partly finance Torgau. According to the Declaration, the growth was funded primarily with additional debt and available cash. Total principal under the Company's senior notes and credit facility borrowings rose by approximately $430 million between December 31, 2020 and December 31, 2023, to approximately $1.6 billion.

Pulp and Solid Wood Markets

Pulp markets have stayed weak, particularly for NBSK in China and North America. Demand in China has been held back by an oversupplied paper market and economic and trade uncertainty. Quoted NBSK net prices in China averaged approximately $672 per tonne in the first half of 2026, down from approximately $764 per tonne in the first half of 2025. Quoted North American list prices also fell materially, and Mercer's average NBSK sales realizations dropped approximately 11% year over year.

European demand for solid wood products also stayed subdued. Solid Wood Segment revenue rose in the first half of 2026 and average lumber realizations increased approximately 5%. However, lumber revenue fell on lower volumes, and higher fiber costs more than offset the price gains.

Fiber, Energy, and Currency Costs

Wood fiber is one of the Company's largest production costs, and it has risen sharply. Per-unit pulp fiber costs rose approximately 18% in the first half of 2026 compared with the prior-year period. The Declaration attributes the increase primarily to reduced supply in Germany and Canada and strong demand in Germany for wood as an energy source. Fiber made up approximately 85% of lumber cash production costs in the first half of 2026, and per-unit fiber costs for lumber rose approximately 32% year over year. High fiber costs led the Company to cut production at its German pulp mills.

The Declaration also cites the conflicts in Ukraine and the Middle East. It describes the Middle East conflict as pushing oil and energy prices higher, adding inflationary pressure to freight, fiber, and other production costs, and states that heightened geopolitical uncertainty has weighed on demand.

Currency is another cost driver. Most operating costs at the German mills are in euros and most at the Canadian mills are in Canadian dollars, while most products are priced in U.S. dollars. A weaker U.S. dollar raised those costs in dollar terms, producing a negative foreign exchange impact on operating loss of approximately $15.7 million in the first half of 2026 compared with the first half of 2025.

Financial Results

Mercer's Operating EBITDA fell from approximately $243.7 million in 2024 to negative $22.2 million in 2025. It was negative $13.1 million in the first half of 2026, compared with positive $26.5 million a year earlier. In the first half of 2026 the Company also recorded approximately $51 million of inventory impairment charges, mainly against pulp and fiber inventory because of low pulp prices and high fiber costs. Cash used in operating activities was approximately $100.8 million, compared with approximately $7.5 million in the prior-year period. Under the prepetition capital structure, annual cash interest expense was approximately $122 million.

Secured Facility Maturities

Both secured facilities, the Canadian ABL Facility and the German RCF, were approaching maturity. According to the Declaration, without the restructuring the Company would not have enough liquidity to repay them at maturity and may not be able to refinance or extend them on commercially viable terms. The Declaration also states that the need to address these maturities was a significant factor in the timing of the filing.

Prepetition Restructuring Efforts

The Company pursued several liquidity and cost measures:

In February 2026, the Board formed a special committee (the "Special Committee") to oversee liquidity strategies and other transactions to improve the capital structure. The Declaration describes the committee's members as independent directors; they are currently Alice Laberge, Thomas Kevin Corrick, and William D. McCartney. Under its oversight, the Company retained Latham & Watkins LLP ("Latham") and Hunton Andrews Kurth LLP as legal counsel, Houlihan Lokey Capital, Inc. as investment banker, and Alvarez & Marsal as financial advisor.

The Company and its advisors approached the Canadian ABL Facility and German RCF lenders about extensions, refinancings, and other alternatives. According to the Declaration, those talks did not produce a transaction on commercially viable terms.

By July 2026, the Company and its advisors had begun preliminary talks with Senior Notes holders and other stakeholders. As those talks progressed, the Company engaged more extensively with an ad hoc group of Senior Notes holders (the "Majority Ad Hoc Group"), advised by Paul, Weiss, Rifkind, Wharton & Garrison LLP and Ducera Partners LLC, and with certain large equity holders. By September 2026 the talks had become advanced negotiations, after which the Company and the Majority Ad Hoc Group reached agreement in principle on a high-level commercial term sheet. During late September and October, the Company, the Majority Ad Hoc Group, certain equity holders, and their advisors negotiated and finalized the restructuring support agreements and the plan.

October 2026 Interest Payment and Indenture Supplements

While negotiations continued, the Company chose not to make the approximately $25.8 million interest payment due October 1, 2026 on the 2028 Senior Notes and entered the indenture's 30-day grace period. On October 31, 2026, the 2028 Senior Notes indenture was amended to extend the grace period to 90 days.

On November 2, 2026, on the Special Committee's recommendation and with Board approval, the Debtors signed two restructuring support agreements: one with consenting noteholders (the "Consenting Senior Noteholder RSA") and one with consenting equity holders (the "Consenting Equityholder RSA"; together, the "Restructuring Support Agreements"). Both indentures were then supplemented on November 5, 2026 to add Mercer Texas as a guarantor, and on November 6, 2026 to provide that the Chapter 11 filing would not constitute an event of default.

Chapter 11 Filing

The Debtors filed in the U.S. Bankruptcy Court for the Southern District of Texas to carry out a "straddle" prepackaged balance sheet restructuring: noteholder votes were solicited before the petition and solicitation continues after it. The Debtors' Joint Prepackaged Chapter 11 Plan of Reorganization (the "Plan") targets the Senior Notes. It would cut total funded debt from approximately $1.6 billion to approximately $700 million at emergence on the Plan's effective date (the "Effective Date"), and reduce annual cash interest expense by approximately $100 million.

The Debtors' only funded-debt creditors are unsecured. They intend to fund the cases entirely with unencumbered cash, without DIP financing or use of cash collateral, and are not seeking to prime or otherwise affect any secured creditor. The operating business is expected to continue in the ordinary course outside the cases.

Restructuring Support Agreements

Holders of approximately 87.25% of Senior Notes principal had signed the Consenting Senior Noteholder RSA as of November 2. The Declaration puts noteholder support at approximately 88.58%, the same share it attributes to the Majority Ad Hoc Group. The agreement took effect once holders of at least 66⅔% of Senior Notes principal had signed. Most consent rights belong to the "Required Consenting Senior Noteholders": at least two unaffiliated consenting noteholders holding at least 50.1% of the notes held by all consenting noteholders.

The Declaration puts support under the Consenting Equityholder RSA at approximately 43.1% of existing equity. However, that agreement's recitals state that its initial signatories held approximately 50.0% as of November 2, and its effectiveness condition requires signatures from holders of at least 50.0%.

Under both agreements, consenting parties agreed to vote for the Plan, not to opt out of its releases, and to support the transactions. Consenting equity holders must use commercially reasonable efforts to vote within three business days of receiving solicitation materials. Consenting noteholders also agreed not to object to Houlihan Lokey's retention or to fees payable under its engagement letter.

Besides Paul Weiss and Ducera, the Majority Ad Hoc Group's advisors include:

Plan Treatment

Only two classes are impaired and entitled to vote.

Rights Offering, Backstop, and New ABL Facility

RSA Covenants

Termination Rights

The Required Consenting Senior Noteholders may terminate the Consenting Senior Noteholder RSA on three days' notice upon events including the following:

The Debtors may terminate on three days' notice in cases including the following:

The Debtors may respond to unsolicited alternative proposals where the Board or a special committee determines that not doing so would be inconsistent with its fiduciary duties. They must share any such proposal with the consenting noteholders and the Majority Ad Hoc Group's advisors within two calendar days. If the Consenting Senior Noteholder RSA terminates, either the Debtors or individual consenting equity holders may terminate the Consenting Equityholder RSA.

Releases, Investigation, and Director Compensation

The Plan and the Restructuring Support Agreements provide releases to the Debtors' directors and officers, among others. Given those releases, the Special Committee will oversee an investigation into prepetition transactions and conduct to ensure that the releases are appropriate in scope and nature. Latham, which is also the Company's legal counsel, will assist. According to the Declaration, no viable claims have been identified to date that would affect the Board's decision to authorize the Restructuring Support Agreements and solicitation of the Plan. The Company has agreed to pay the Special Committee members $200,000 in total one-time transaction fees at emergence.

Mercer's non-employee directors hold stock-based and cash deferred awards that normally settle when a director leaves the Board. The Plan would cancel existing equity and treat the Board as resigning on the Effective Date. In light of that, the Board changed the award terms:

At current share values the awards total approximately $218,000 across all non-employee directors. The resulting shares receive the same Plan treatment as other existing equity.

Solicitation

Noteholder solicitation began before the Petition Date. Eligible holders of Senior Notes Claims (accredited investors, qualified institutional buyers, and certain non-U.S. persons) may vote at any time before the voting deadline. Non-eligible noteholders and Class 8 equity holders may vote only after the court enters the solicitation procedures order. Holders in non-voting classes, other than holders of intercompany claims and interests, will receive notice of their non-voting status and a release opt-out form.

Key Dates

First Day Motions