Mercer International (NASDAQ:MERC) reported a narrower third-quarter loss as it moved forward with a debt restructuring designed to exchange approximately $1.1 billion of senior notes for equity and raise new financing.
The pulp and wood products company reported a net loss of $59 million, or $0.88 per share, compared with a loss of $76 million, or $1.13 per share, in the second quarter. Operating EBITDA improved to negative $3 million from negative $21 million, despite a $34 million impact from planned maintenance downtime.
Chief Financial Officer and Secretary Richard Short said the improvement was largely attributable to a smaller non-cash inventory impairment. The third-quarter charge was $8 million, down from $29 million in the prior quarter.
Restructuring Targets Lower Debt
Mercer entered a restructuring support agreement on Nov. 2 with holders of more than 87% of its senior notes and a majority of its common shareholders, Short said. The proposed exchange would reduce existing senior note debt by approximately 88%, with minimal cash interest requirements for two years following the transaction and no senior note maturities until 2031.
The plan also includes a $400 million rights offering of new senior secured notes, fully backstopped by certain members of an ad hoc group of noteholders. The recapitalization is being implemented through a prepackaged Chapter 11 plan involving only the parent company and a Texas subsidiary.
Short said operating subsidiaries would continue business as usual and that Mercer would meet customer, supplier and employee obligations without interruption. The company expects court confirmation within about 45 days of filing and completion of the recapitalization by the end of 2026.
Because the transaction requires court approval, Mercer retained a going concern disclosure in its third-quarter financial statements. Short said the disclosure stems from the classification of its Canadian and German revolving credit facilities as current liabilities.
Maintenance Weighed on Production
Mercer took 44 days of planned maintenance downtime in the third quarter, compared with none in the second quarter. Pulp production fell to approximately 407,000 tons from 456,000 tons, while sales declined to about 421,000 tons from 450,000 tons.
The pulp segment generated $6 million in EBITDA, while the solid wood segment posted a $7 million EBITDA loss. Softwood pulp sales realizations averaged $671 per ton, down from $682 in the second quarter, and hardwood realizations slipped to $601 per ton from $607.
President and Chief Executive Officer Juan Carlos Bueno said industry downtime helped balance pulp supply despite soft demand. He expects reduced supply to more than offset low demand and push northern bleached softwood kraft pulp prices modestly higher before year-end. He also expects slight fourth-quarter improvements in northern bleached hardwood kraft pulp prices.
Mercer’s German pulp mills will continue operating at reduced rates in the fourth quarter, Bueno said. The Rosenthal mill also experienced 24 days of unplanned downtime in October after an effluent treatment problem during its restart from maintenance caused an emissions exceedance. A planned 18-day shutdown at the Celgar mill was completed in October, resulting in approximately 23,000 tons of lost production.
Cost Cuts and Mass Timber Backlog
Mercer is restructuring its Torgau mill and expects the changes to be fully implemented near the end of the second quarter of 2027. Bueno said the company anticipates reducing headcount by almost 400 positions, with 63% of those reductions already completed and the remainder scheduled over the following six months.
The company remains on track to improve profitability by $100 million by the end of 2026 under its One Goal One Hundred program, using 2024 as the baseline. Bueno said the initiative delivered about $30 million in savings in 2025 and another $46 million through the third quarter of 2026.
At Peace River, Mercer secured $26 million in government support for productivity and modernization projects, consisting of $13 million in non-repayable grants and $13 million in repayable contributions.
Mass timber revenue declined from the second quarter because of production issues at the Conway facility and construction project delays. Bueno said the company expects production and sales to rise significantly in the fourth quarter. Its mass timber project backlog stood at approximately $151 million, with large data center projects sponsored by hyperscalers accounting for about 62% of that total.
Mercer ended the third quarter with approximately $144 million in liquidity, down $48 million from the prior quarter. That included $71 million in cash and $73 million in undrawn revolving credit facilities. Bueno said the company expects persistent market weakness in the fourth quarter and will focus on cost reductions, minimal capital spending, working capital and operational efficiency.
About Mercer International (NASDAQ:MERC)
Mercer International Inc is a global producer of market northern bleached softwood kraft (NBSK) pulp, a wood-fiber material used to manufacture tissue, printing and writing papers, specialty papers, and other fiber-based products. The company sells its pulp to customers in a range of international markets, primarily through direct sales and established distribution channels.
Mercer operates pulp mills in Germany and Canada. Its German operations include the Rosenthal mill in Blankenstein and the Stendal mill in Arneburg, while its Canadian operations include the Celgar mill in Castlegar, British Columbia.
