AbitibiBowater under bankruptcy protection

MONTREAL - Thousands of employees of debt-laden AbitibiBowater Inc. (TSX:ABH) face months of uncertainty about their jobs and pensions while the newsprint producer operates under bankruptcy protection..
Abitibi-Bowater said Thursday it will continue daily operations and meet its payroll as it deals with US$6 billion of debt while under the protection of courts in Canada and the United States.
The Montreal-based company said it had no other option but to file under Chapter 11 of the U.S. bankruptcy code, and its Canadian equivalent, after failing to refinance debts at its Bowater and Abitibi-Consolidated subsidiaries.
Dave Coles, president of the Communications, Energy and Paperworkers Union, said his top priority is to ensure that the pensions and benefits of the company's retirees and its current unionized workers are protected in any court-sponsored restructuring.
"Then the next issue is to ensure that we save and maintain as many jobs and communities that is at all possible across Canada," Coles said from Ottawa.
Coles said he suspects that workers will be asked for concessions to help the company through its restructuring.
"We're prepared to work on many cost issues, but this isn't about the wages and benefits of our members," he said. "It's not labour costs that have put the company in jeopardy. It's their mismanagement and their debt load."
AbitibiBowater made its Chapter 11 filing in Delaware on Thursday and said it will filed under the Companies' Creditors Arrangement Act in Canada on Friday.
Both laws are designed to allow companies to continue operating while working with their creditors - from lenders to suppliers to employees to governments - under court supervision.
AbitibiBowater faces trouble in its markets as demand for pulp, lumber, newsprint, other paper products and cardboard are all expected to be squeezed by the recession.
Meanwhile, deep structural changes in the newspaper industry as new delivery on the Internet grows continue to reduce overall demand.
In a document filed with the Delaware bankruptcy court, the company said it has about 15,800 active employees around the world, including about 11,268 in Canada and 3,920 in the United States.
About 11,600 of the employees are represented by unions, predominantly the CEP in Canada and the United Steelworkers in the United States.
The Quebec government said it's not prepared to abandon the jobs in the province's forest industry without a fight, saying they are critical to the survival of regional communities.
"Our Quebec public forests, which belong to Quebecers, must be used to employ the most workers in Quebec and in all of the regions of Quebec," Natural Resources Minister Claude Bechard said in Quebec City.
Bechard also said the Quebec government could also offer financial aid to help keep the maximum number of jobs in the province.
AbitibiBowater shares were suspended from trading Thursday on the Toronto Stock Exchange.
Company spokesman Seth Kursman wouldn't comment on what form the restructuring will take.
"Let's not speculate in the future about what actions are going to be undertaken at any given facility or across the company," Kursman said.
AbitibiBowater has already cut 4,000 jobs since the merger of predecessors Abitibi-Consolidated and Bowater Inc. in 2007, creating one of the world's largest paper producers.
Last year, the company announced the shutdown of a century-old paper mill in Grand Falls, Nfld., cutting more than 800 jobs, as part of an earlier round of streamlining to deal with excess capacity and lower demand.
The Newfoundland and Labrador government has taken over the hydroelectric power plant at the mill after passing a law to expropriate the assets and water and timber rights, despite the company's objections and threat of a challenge under the North American Free Trade Agreement.
Meanwhile, severance cheques for former workers at AbitibiBowater in Grand Falls-Windsor, N.L., are in doubt following the company's move to file for bankruptcy protection.
Local Company spokesman Jean Philippe Cote said Thursday that AbitibiBowater will not be making the severance payments to its former employees in the province - at least not for the time being. Cote said pension payments are not affected.
Desjardins Securities analyst Pierre Lacroix wrote in a note that AbitibiBowater has been on shaky ground given its financial situation within the current "credit-restricted environment."
"Now that the company has put itself under court-directed restructuring, equity holders are in an even more uncertain and critical position," he wrote.
Moody's Canada said it views the bankruptcy filing as a "default" and is expected to withdraw its credit rating in the coming days, said Ed Sustar, senior analyst of Forest Products.
Kursman said it will be business as usual during the restructuring for the company, which operates 23 pulp and paper and 30 wood products mills in Canada, the United States, the United Kingdom and South Korea.
"So that means the processing of wages, salaries, benefits - that will all continue in the ordinary course at this time."
Coles blamed AbitibiBowater management for the "enormous" debt created when the two predecessor companies merged.
"Much of AbitibiBowater as a running, going concern is profitable," he said. "They can manage this crisis. But they can't manage the debt. They're going into bankruptcy protection for one reason and one reason only - they cannot refinance their debt."
The troubles at AbitibiBowater mirror problems at other iconic Canadian forestry companies such as Tembec and Domtar as the industry faces a global drop in demand for paper, a steep decline in the lumber market, mill closures and thousands of layoffs that have battered mill towns across Canada.
Under bankruptcy protection, AbitibiBowater can use the courts to protect it from the banks and other creditors while it comes up with a survival plan to stay alive as a smaller company.
In a related matter Thursday, AbitibiBowater said it has struck a deal with Fairfax Financial Holdings Ltd. (TSX:FFH), a major shareholder, and other investors for about $200 million in emergency debtor-in-possession financing for some of its subsidiaries.
In addition, its Abitibi-Consolidated unit has continued an existing securitization program for its accounts receivable, providing another $210 million in financing.