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The Richmond, Virginia-based company said it could not keep up with interest payments on its debt as the slowing economy and aggressive competition undermined demand for its folding cardboard boxes, leaflets and plastic beverage bottles, according to court documents filed late on Monday.
A widespread credit crunch also meant the company, founded in 1918, could not borrow more money, it said.
A group of investors including affiliates of Irving Place Capital Management LP and Oaktree Capital Management LP, have said they will pay $485 million for the company, with the amount paid to the company reduced by pension and severance obligations, subject to bankruptcy court approval, according to a press release.
The private equity group plans to operate the business as usual.
Chesapeake said it filed for Chapter 11 bankruptcy protection to help facilitate the purchase. Chesapeake's non-U.S. subsidiaries were not included in the filing and there were no plans to place them in administration, the company said.
"The sale transaction and Chapter 11 process will help us meet several critical objectives, including allowing ongoing operation of all of our businesses without interruption to supplier and customer relationships," Andrew Kohut, president and chief executive officer, said in a statement.
Chesapeake has asked the court to approve debtor-in-possession financing of as much as $37 million provided by some members of its banks, with Wachovia Bank, National Association as the agent.
The company had about 392 employees at the time of the bankruptcy filing.
Chesapeake competitors include Packaging Corporation of America. The Dow Jones container and packaging index has fallen 41 percent so far this year.
CRIPPLING DEBT
Chesapeake said in court filings it is "significantly levered" with almost $521 million in non-trade, interest-bearing debt. The debt results in annual interest expense of about $49.5 million. The company said it no longer has access to borrowings or other capital and determined that it could no longer support its current level of debt.
Assets and liabilities for the company were listed at between $500 million and $1 billion each.
The case is In re Chesapeake Corp, U.S. Bankruptcy Court for the Eastern District of Virginia, Richmond Division. No. 08-36642.
(Editing by Maureen Bavdek) Keywords: CHESAPEAKE/BANKRUPTCY
(chelsea.emery@thomsonreuters.com; +1 646 223 6115; Reuters Messaging: chelsea.emery.reuters.com@reuters.net)
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