Mercer International - Chapter 11 Plan Terms

Plan Terms

Overview

• Mercer International Inc., a Washington corporation, and its debtor affiliate, Mercer International (Texas) LLC, filed the solicitation version of a joint prepackaged Chapter 11 plan on Nov. 9, 2026. The plan converts approximately $1.32 billion of allowed senior notes claims into new equity and takeback debt. It also issues $420 million of new money senior secured notes, including $20 million of original issue discount, through a fully backstopped rights offering.
• Senior noteholders receive 91.5% of the new common stock, 56.5% of $325 million of new convertible preferred stock and $150 million of takeback senior secured notes. They also get the right to buy the new money notes, which carry 40% of each equity class as stapled equity; the stapled common dilutes only the noteholders' common allocation. Existing shareholders receive 8.5% of the common stock and 3.5% of the preferred, and every other class is unimpaired.
• Members of the Majority Ad Hoc Group of senior noteholders backstop 100% of the rights offering for a $56 million put option premium. At exit, the reorganized company will also enter into a new asset-based revolver of up to $300 million.
• The plan implements two restructuring support agreements dated Nov. 2, 2026: a noteholder RSA between the debtors and consenting holders of senior notes claims, and an equityholder RSA with consenting holders of Mercer's existing equity. It also implements a backstop commitment letter of the same date with the backstop parties.
• The Required Consenting Senior Noteholders, as defined in the noteholder RSA, hold consent rights over the plan and most deal documents.

Treatment of Claims and Interests

• Only Class 3 and Class 8 are impaired and vote. A voting class in which no eligible holder votes is presumed to accept, and if either voting class rejects, the debtors intend to seek confirmation under section 1129(b).
• Administrative claims, restructuring expenses and allowed professional fees are unclassified. Administrative claims, which include the put option premium, are paid in full in cash or given other treatment consistent with section 1129(a)(9) as the debtors agree, with ordinary-course liabilities paid in the ordinary course; restructuring expenses and allowed professional fees are paid in full in cash. Priority tax claims are also unclassified and are paid in cash or otherwise treated consistent with section 1129(a)(9).
• Class 1, secured claims (unimpaired, presumed to accept): at the debtors' option, and in consultation with the Required Consenting Senior Noteholders, payment in full in cash, delivery of the collateral, reinstatement or other unimpairing treatment.
• Class 2, other priority claims (unimpaired, presumed to accept): treatment consistent with section 1129(a)(9).
• Class 3, senior notes claims (impaired, entitled to vote): these are claims under Mercer's 12.875% senior notes due Oct. 1, 2028 and 5.125% senior notes due Feb. 1, 2029, with Computershare Trust Company, N.A. as trustee for both. They are allowed at $1,318,493,160.59, equal to principal plus accrued and unpaid interest, fees and premiums through the petition date. Each holder receives its pro rata share of:
  • subscription rights in the rights offering
  • 91.5% of the new common stock, subject to dilution by the management incentive plan, the stapled equity and conversion of the new convertible preferred stock
  • 56.5% of the new convertible preferred stock
  • the $150 million of takeback senior secured notes
• Class 4, general unsecured claims (unimpaired, presumed to accept): paid in full in cash on or after the effective date or in the ordinary course. Alternatively, the debtors may give other unimpairing treatment, decided in consultation with the Majority Ad Hoc Group. Allowed contract and lease rejection claims are also treated in Class 4.
• Class 5, intercompany claims (unimpaired, presumed to accept): subject to the restructuring transactions and at the debtors' option, reinstated or set off, settled, distributed, contributed, merged, cancelled or released. This requires the reasonable consent of the Required Consenting Senior Noteholders and must follow the noteholder RSA.
• Class 6, intercompany interests (unimpaired, presumed to accept): retained by their existing holders unless the debtors and the Required Consenting Senior Noteholders agree otherwise.
• Class 7, section 510(b) claims (unimpaired, presumed to accept): reinstated and continue in the ordinary course.
• Class 8, existing equity interests in Mercer (impaired, entitled to vote): each holder receives its pro rata share of 8.5% of the new common stock and 3.5% of the new convertible preferred stock.
  • The common stake is diluted by the management incentive plan and preferred conversions. Unlike the noteholders' stake, it is not diluted by the stapled equity.
  • Unvested interests and unexercised options, warrants and other rights to acquire equity in the debtors are cancelled with no distribution.

Rights Offering and Backstop

• Size: $420 million aggregate principal amount of new money senior secured notes, including $20 million of original issue discount and excluding the put option premium. The notes are offered for cash, pro rata, to holders of allowed senior notes claims as of the Nov. 9, 2026 record date.
• Stapled equity: subscribers receive 40% of the new common stock and 40% of the new convertible preferred stock, pro rata to their subscriptions. The stapled common dilutes only the common distributed to Class 3. The stapled common, stapled preferred and notes can each be transferred separately.
• ABL offset: the cash-funded amount is subject to a dollar-for-dollar reduction for amounts drawn under the new ABL facility at close. The reduction is available only if and to the extent liquidity at close exceeds $300 million, and it cannot take liquidity below $300 million.
• Backstop: the backstop parties are members of the Majority Ad Hoc Group that signed the backstop commitment letter. They backstop 100% of the offering and receive stapled equity as the letter provides.
• Put option premium: $56 million, payable in cash or in an equal amount of new senior secured notes.
  • The premium is fully earned as of the date of the letter and becomes non-refundable and non-avoidable when the backstop order is entered.
  • It is an allowed administrative claim and is paid without setoff or reduction.
  • Payment of the premium is a condition to the effective date.
• The debtors' obligations under the backstop letter pass to the reorganized debtors and survive the effective date without being discharged. Subscription rights can be transferred only as the rights offering documents allow, and the offering closes only if the plan is consummated.

New Senior Secured Notes

• Reorganized Mercer will issue a single class of new senior secured notes, consisting of:
  • the $420 million of new money notes
  • the $150 million of takeback notes issued to Class 3
  • unless the premium is paid in cash, put option premium notes issued to the backstop parties
• All three issuances have identical terms, including interest rate, maturity, amortization, guarantees, collateral, ranking, covenants, events of default and redemption provisions. They are fully fungible and, where DTC procedures permit, share CUSIPs and trade as a single series. The indenture must be consistent with the noteholder RSA and the new senior secured notes term sheet.
• Securities exemptions:
  • New money notes issued to the backstop parties under the backstop letter are placed privately under section 4(a)(2) of the Securities Act. Put option premium notes are excluded from the private placement if the beneficial owner so elects.
  • Plan securities issued for claims otherwise rely on section 1145.
  • If counsel to the debtors and counsel to the consenting noteholders agree, all of the new notes may be placed privately.

New ABL Facility

• Size: up to $300 million in aggregate. Reorganized Mercer or its affiliates enter into the facility on the effective date, and its key terms and principal amount will be filed in the plan supplement.
• Structure: the facility can be a global facility, one or more regional facilities (such as North America and Europe), or another facility reasonably acceptable to the Required Consenting Senior Noteholders and the debtors.
  • The debtors choose the structure with the consent of the Required Consenting Senior Noteholders and raise the facility in consultation with the Majority Ad Hoc Group.
  • Any intercreditor agreement with the new notes must be acceptable to the Required Consenting Senior Noteholders.
• Commitments shrink by whatever principal the lenders under the existing Canadian ABL facility agree to reinstate, extend or provide under a new or amended facility. That facility has Royal Bank of Canada as agent and runs under a Jan. 21, 2022 credit agreement amended June 10, 2024. Its borrowers are Mercer Peace River Pulp Ltd., Mercer Celgar Limited Partnership and Mercer Forestry Services Ltd., none of which is a debtor.
• The plan treats the following as definitive documents:
  • documents required or advisable under the Canadian ABL facility
  • documents required or advisable under the German revolving facility, agented by UniCredit Bank AG, whose borrowers are German Mercer entities including Mercer Rosenthal GmbH, Mercer Stendal GmbH and Mercer Torgau GmbH & Co. KG
  • a Canadian ABL amendment defined in the restructuring term sheet
• Entry into and funding of the new ABL facility is a condition to the effective date.

New Equity and Listing

• New common stock: a single voting class, split 91.5% to Class 3, 8.5% to Class 8 and 40% as stapled equity that dilutes only the Class 3 allocation.
• New convertible preferred stock: $325 million, split 56.5% to Class 3, 3.5% to Class 8 and 40% as stapled equity.
  • It converts into common stock under the new governance documents and a certificate of designation consistent with the convertible preferred stock term sheet.
  • Common shares issuable on conversion, including shares for any dividends paid in kind, are reserved on the effective date.
• Management incentive plan: up to 8.5% of the new common stock, on a fully diluted basis, for directors, officers and employees. The reorganized board sets its structure, awards and terms within 90 days after the effective date. Plan shares dilute all common stock equally, including shares issued in the rights offering.
• Listing: reorganized Mercer will take commercially reasonable actions to list the common stock on one of the following:
  • the New York Stock Exchange
  • the Nasdaq Capital Market
  • the Nasdaq Global Market
  • another national exchange chosen by the Required Consenting Senior Noteholders and reasonably acceptable to the debtors
• The Required Consenting Senior Noteholders, with the debtors' reasonable consent, can decide before the effective date not to list. On the same basis, they decide whether reorganized Mercer stays a public reporting company under U.S. securities laws. A registration rights agreement will be signed at exit.
• Reorganized Mercer will be either Mercer itself or another new parent chosen by the debtors with the consent of the Required Consenting Senior Noteholders. Either way, it must be a domestic corporation taxed as a C corporation, and the restructuring steps must be tax-efficient for both the debtors and the consenting noteholders.

Governance

• The reorganized board will have seven directors, including the chief executive officer and at least three independent directors.
  • Its composition is agreed collectively by the Majority Ad Hoc Group members identified in the governance term sheet.
  • Each major holder in the ad hoc group, as the governance term sheet defines that term, designates one director.
  • The directors will be named in the plan supplement.
• Current directors' terms end on the effective date, and the debtors' existing officers stay on as the reorganized debtors' initial officers.

Supporting Parties and Consent Rights

• The noteholder RSA's consultation, information, notice and consent rights are built into the plan and override any conflicting plan provision. Counsel can give consent by email.
• The following must be acceptable to the Required Consenting Senior Noteholders and reasonably acceptable to the debtors: the new notes indenture, the new governance documents, the registration rights agreement, any intercreditor agreements and the restructuring steps exhibit.
• The consent of the Required Consenting Senior Noteholders is also required for plan amendments, waivers of conditions, changes to the rejected-contract schedule, and any court alteration of an invalid plan provision.
• The debtors may revoke the plan before the effective date without affecting rights under the noteholder RSA. Both the noteholder RSA and the backstop letter must remain in full force as conditions to the effective date.
• In exchange for, among other things, the plan releases, the consenting noteholders (under the noteholder RSA) and the backstop parties (under the backstop letter) agreed to make contributions that the plan describes as fundamentally necessary to its implementation.
• Advisors to the Majority Ad Hoc Group: Paul, Weiss, Rifkind, Wharton & Garrison LLP (counsel), Ducera Partners LLC (financial advisor and investment banker), Osler, Hoskin & Harcourt LLP (Canadian counsel), Porter Hedges LLP (local counsel), Jon F Weber & Co., LLC (restructuring advisor) and Spencer Stuart (executive search).
• Debtors' counsel: Latham & Watkins LLP and Hunton Andrews Kurth LLP.

Fees and Other Payments

• Restructuring expenses: these are the reasonable and documented fees and expenses of the Majority Ad Hoc Group's advisors, the senior notes trustees and advisors to Computershare, including a reasonable retainer for post-effective date work.
  • To the extent invoiced before the effective date, they are paid in full in cash on the effective date under the noteholder RSA, with no fee applications or court review.
  • Their payment is a condition to the effective date.
• Incentive plan and special committee: accrued and unpaid obligations under Mercer's annual short-term incentive plan, capped at $1.7 million, are paid on or soon after the effective date. So are the fees and expenses of the members of the special committee of Mercer's board, with the fees capped at $200,000.
• Professional fees: the debtors fund a professional fee escrow by the effective date, and final fee applications are due 45 days after the effective date.

Employee Plans, Indemnification and Insurance

• All employee plans in effect at exit are assumed. Neither the assumption nor the restructuring triggers change-of-control, accelerated vesting or enhanced severance rights. In consultation with the Required Consenting Senior Noteholders, the debtors will amend any plan that would otherwise be triggered.
• Mercer's Amended and Restated 2022 Stock Incentive Plan and any other equity-award plan end on the effective date. Unvested time-based or performance-based awards are cancelled for no consideration.
• Indemnification obligations to current officers, directors, agents and employees are assumed.
• All insurance policies, including D&O coverage, are assumed, and D&O coverage may not be reduced. The debtors or reorganized debtors will buy tail coverage lasting at least six years after the effective date.

Releases, Exculpation and Injunction

• The released parties are:
  • the debtors and the reorganized debtors
  • the consenting noteholders and consenting equityholders
  • Computershare, as trustee for both note series
  • the backstop parties
  • each Majority Ad Hoc Group member
  • the related parties of each of the above
• A party loses released-party status if it opts out of the releases or files an objection that is not resolved before confirmation.
• The debtor release covers claims relating to the debtors and their non-debtor affiliates, the senior notes documents, intercompany transactions, restructuring efforts, the RSAs and the plan. It excludes:
  • ordinary-course commercial claims such as receivables and payables
  • claims under assumed contracts
  • claims for actual fraud, gross negligence or willful misconduct determined by final order
• The third-party release has the same scope but without the ordinary-course and assumed-contract exclusions. It binds:
  • the debtors and the reorganized debtors
  • the consenting noteholders and consenting equityholders
  • the senior notes trustees
  • the backstop parties
  • voting holders in Classes 3 and 8 that do not opt out on their ballots
  • holders in deemed-accepting classes that do not opt out on the opt-out form sent to Classes 1, 2, 4 and 7
  • the related parties of each of the above, to the extent of agency or derivative claims
• Holders are not bound by the third-party release if they object in time, either formally on the docket or informally by email to the debtors, and the objection is not withdrawn or otherwise resolved before the confirmation order is entered.
• Neither release covers obligations under the plan and its implementing documents, or causes of action kept on the schedule of retained causes of action.
• Exculpation covers only the debtors, their estates and the debtors' independent directors, for conduct between the petition date and the effective date. It excludes willful misconduct, actual fraud and gross negligence, and is limited to estate fiduciaries.
• From the effective date, all persons are permanently enjoined from suing, enforcing judgments, creating or enforcing liens, or asserting setoff or subrogation against any released, exculpated or discharged party on account of claims released, exculpated, settled or discharged under the plan.
• A gatekeeping provision bars any claim against the debtors, reorganized debtors, exculpated parties or released parties that relates to matters covered by the release and exculpation provisions. Such a claim can proceed only if the bankruptcy court first finds it colorable after notice and a hearing and specifically authorizes it. The court may require a proposed complaint meeting Federal Rules of Civil Procedure 8 and 9, and must do so if a party asks.

Conditions to Effectiveness

• The effective date requires, among other conditions:
  • a confirmation order that is consistent with the noteholder RSA's consent rights and has become a final order
  • signed definitive documents, including the new debt documents, consistent with the noteholder RSA and the restructuring term sheet
  • entry into and funding of the new ABL facility, funding of the new senior secured notes and payment of the put option premium
  • regulatory approvals, including from the German Ministry for Economics and Energy (BMWE) and the Canadian Commissioner of Competition, with all waiting periods expired or ended
  • the noteholder RSA and the backstop letter remaining in full force
  • selection of the reorganized board in accordance with the noteholder RSA
  • payment of restructuring expenses in full and full funding of the professional fee escrow
  • no injunction or law barring the restructuring
• The debtors and the Required Consenting Senior Noteholders may waive conditions in writing. Waiving the restructuring-expense or professional-fee-escrow condition also requires the consent of the affected professionals.
• The debtors must use best efforts to provide regulatory diligence and file for the approvals, and must take commercially reasonable actions to obtain them.

Other Plan Provisions

• All executory contracts and unexpired leases, including intellectual property licenses, are assumed, except those that are:
  • rejected by prior order
  • subject to a pending rejection motion or cure dispute
  • listed on a rejection schedule filed with the consent of the Required Consenting Senior Noteholders
• Cure amounts are paid in cash on the effective date. Rejection damages claims must be filed within 21 days after service of the order approving the rejection.
• Only rejection claimants need to file proofs of claim, and claims disputes are resolved as if the cases had not been filed. Any other filed proofs of claim are treated as disputed and are expunged on the effective date.
• On the effective date, every case except that of Mercer International (Texas) LLC will be closed, with the confirmation order serving as the final decree. The Texas case can be closed once final professional fee applications are resolved.