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Chesapeake Corp. Files For Chapter 11

Specialty packaging company has filed for bankruptcy protection and plans to sell itself to a group of investors for about $485 million.

RICHMOND, Va. (AP) -- Specialty packaging company Chesapeake Corp. has filed for Chapter 11 bankruptcy protection and plans to sell itself to a group of investors for about $485 million.

The company's stock, which is traded over-the-counter, closed at 6 cents Monday, well off the $5.61 it traded at a year ago and a sharp drop from the more than $20 it traded for just a few years ago.

Chesapeake, which makes paper cartons and plastic containers for the health care, beverage and food markets, has been cutting jobs and realigning operations in an effort to foster growth and reduce costs. The company struggled earlier this year to complete a $250 million credit line with a group led by GE Commercial Finance Ltd. and General Electric Capital Corp. to refinance prior debt.

The company's shares were delisted from the New York Stock Exchange in October. Chesapeake last month reported a loss for the nine months ended Sept. 28 of $277.1 million as the company booked hefty environmental cleanup and other charges. Sales slipped to $752.5 million due to lost business with British American Tobacco and less demand for drug and health care packaging.

In its 10-Q filing with the Securities and Exchange Commission, Chesapeake listed total assets of $936.6 million as of Sept. 28 and $937.1 million in total liabilities.

Chesapeake filed for bankruptcy Monday in the Eastern District of Virginia in Richmond under Chapter 11, which allows a company to reorganize. Non-U.S. units are not included in the filing.

The group of investors buying Chesapeake include Irving Place Capital Management LP and Oaktree Capital Management LP. They plan to continue operations. All of Chesapeake's manufacturing and distribution facilities are fulfilling customer orders as usual, the company said.

"After exploring a range of possible alternatives to improve our balance sheet and maintain the liquidity we need to operate our businesses in an extremely difficult economic environment, the management and board of directors of Chesapeake concluded that a court-supervised sale of our business operations is in the best interest of the company and its stakeholders," said President and Chief Executive Andrew J. Kohut, in a statement.

The deal is expected to close during the first quarter, subject to court approval. Cash proceeds from the sale will be reduced by certain pension and severance costs and debt obligations, Chesapeake said.

Meanwhile, Chesapeake is seeking preliminary approval from the court for new debtor-in-possession financing of up to $37 million provided by certain current lenders that would provide an immediate source of funds. Availability of the financing is initially limited to just under $18.6 million.

Goldman Sachs & Co. is Chesapeake's financial adviser, Alvarez & Marsal serves as restructuring adviser and Hunton & Williams LLP is the company's legal adviser in the U.S.

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