Chesapeake Corp. expects lenders to issue payment blockage on notes

By Caroline Salls

Pittsburgh, Nov. 12 - Chesapeake Corp. expects its credit facility lenders to issue a payment blockage in connection with its failure to meet financial covenants, according to a 10-Q filed with the Securities and Exchange Commission.

The payment blockage will prohibit the company from making the interest payment due Nov. 15 on its senior subordinated notes.

Chesapeake said neither the issuance of the payment blockage nor the existing credit facility default gives the senior subordinated noteholders a right to accelerate payment of the notes.

However, if the company fails to make the interest payment within a 30-day grace period, an event of default would be triggered under the notes indenture.

As previously reported, holders of more than 70% of the principal amount of Chesapeake's outstanding 10 3/8% sterling-denominated senior subordinated notes due in 2011 and its 7% euro-denominated senior subordinated notes due in 2014 have formed an informal committee and retained a third-party financial adviser to discuss financial restructuring alternatives.

The company said it is still in talks with the committee.

In addition, the company said the restructuring activities could require it to file for bankruptcy.

Failure to successfully implement a restructuring or refinancing plan or otherwise address the credit facility compliance issues could affect Chesapeake's ability to continue as a going concern, according to the filing.

Chesapeake is a Richmond, Va.-based manufacturer and supplier of specialty paperboard packaging products.

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