Smurfit-Stone Container Corp., the largest producer of cardboard box materials in North America and a large manufacturing employer in Covington, has filed for Chapter 11 bankruptcy protection.
The Chicago-based company, which employs nearly 22,000 people working at about 150 facilities across North America and in Asia, said it filed on Monday for protection from creditor claims in the U.S. Bankruptcy Court in Wilmington, Del., while it develops a financial reorganization plan and looks to restructure a heavy debt load amidst the global credit freeze.
The company operates three main divisions: a recycling division, paper mill division and a container building division.
The Covington plant, located on Jersey-Alcovy Road, builds corrugated boxes, was first opened in 1972 and employs 102 people, according to the Covington/Newton County Chamber of Commerce.
Mike Mullin, spokesperson for Smurfit-Stone, said the bankruptcy filing would allow for a financial reorganization of the company and was not a physical restructuring of operations. That said, he added the company has plans to close six of its plants this year, but which ones they will be has not yet been decided.
"We’ve been working through a three-year transformation effort of trying to match facilities to market requirements," Mullin said. "In the process of that, we have had some closures of facilities and some layoffs, but that is par for the normal course of business…that’s separate from the filing issue."
Smurfit-Stone employs 300 people across the state at plants in Atlanta, Augusta, Covington and Duluth.
"The folks in Covington and all throughout our operations are working really hard… to make the kind of products are customers expect and that’s the way we’ll continue to prosper," Mullin said. "We appreciate the support of the people of Covington."
Smurfit-Stone has been struggling to repay its debt, which at the end of the third quarter was $3.5 billion — nearly half its yearly revenue of roughly $7.5 billion.
Chairman and Chief Executive Patrick J. Moore said in a statement that by restructuring its debt Smurfit-Stone would create a better capital structure.
"The acceleration of the unprecedented global economic recession has weakened demand for packaging, and the frozen credit markets have prevented an out-of-court refinancing of our capital structure," Moore said. "While this is not the outcome we anticipated, we are taking this action to become a more financially healthy company."
Smurfit-Stone has received court authorization to, among other things spend up to $550 million of the company’s $750 million debtor-in-possession financing. A hearing, where the company will seek final court approval to utilize the full amount of its financing line has been scheduled for Feb. 23, according to a release from the company.
The $550 million will allow the company to continue to pay its employees’ wages, reimbursements, health coverage, vacation, sick leave and other benefits without interruptions.
The news that Smurfit-Stone had filed for bankruptcy was not a surprise to industry experts.
"The main thing is that this was an expected event and overall being a Chapter 11, instead of a Chapter 7 filing, it is good for the company and good for the industry longer term," said Longbow Research analyst Joshua Zaret.
The Associated Press contributed to the writing of this report.