Mercer International Considers Chapter 11 Filing as Debt Talks Intensify

Mercer International is preparing for a potential Chapter 11 bankruptcy filing as the Canadian pulp producer negotiates a possible recapitalization with bondholders amid mounting debt and liquidity pressures, according to a Bloomberg report published October 21.

The company could seek court protection in the coming weeks, Bloomberg reported, citing people familiar with the matter. Texas is being considered as a potential filing location, although no final decision has been made. Creditors could take control of the company under a bankruptcy restructuring.

Mercer reported a net loss of US$128 million in the first half of 2026, while its cash balance fell from US$186.8 million at the end of 2025 to US$78.8 million on June 30. The company had approximately US$1.3 billion in long-term debt at the end of June. Rising fiber and energy costs, along with persistent cash outflows, have added to the financial pressure.

The potential filing follows Mercer's October 2 disclosure that it was in advanced discussions with an ad hoc group of holders of its 12.875% senior notes due 2028 and 5.125% senior notes due 2029. The group holds more than 75% of the outstanding principal across the two note issues.

Mercer said the proposed recapitalization would include a significant capital infusion to address upcoming debt maturities, improve liquidity and reduce funded debt and related interest expenses. Bloomberg also reported that Redwood Capital Management has been acquiring the company's distressed debt and has become one of its largest creditors.

The company has deferred an approximately US$25.8 million interest payment due October 1 on its 2028 notes, electing to use the 30-day grace period under the bond agreement. Mercer said the use of that period did not itself constitute an event of default under the indenture.

Despite the financial challenges, Mercer said in its October 2 filing that its pulp, lumber and mass-timber operations were continuing in the ordinary course. The company also said it was continuing to serve customers and pay suppliers, contractors and employees as usual.

Mercer's mass-timber business reported a US$151 million order book in August, with data centers accounting for 70% of the total. The company said the order book was expected to support steady production at its mass-timber plants into 2027.

Mercer has expressed optimism about reaching a restructuring agreement but cautioned that there was no assurance a transaction would be completed or when its terms might be finalized. As of the latest reports cited, no Chapter 11 filing had been confirmed.