Davenport Downgrades Chesapeake (CSK) to Sell, Equity Holders Likely Wiped Out

October 2, 2008 1:58 PM EDT

Davenport downgrades Chesapeake Corp. (NYSE: CSK) to Sell and drops coverage.

Davenport analyst says, "Last night, Chesapeake provided an update on its financial restructuring plan. More than 70% of the holders of the company’s Sterling denominated notes and Euro-denominated notes have formed an ad hoc committee and retained Houlihan Lokey as their advisor. They are meeting with Chesapeake to come up with a restructuring plan that would address CSK’s short-term and long-term financing needs, capital structure and operational needs...EQUITY HOLDERS LIKELY WIPED OUT...We had anticipated some dilution from the exchange process that management launched with regard to the Sterling- and Euro-denominated debt. However, based on management’s comments, a more or less complete wipe-out of existing equity holders seems to be the price for the company’s survival. As such, we find it difficult to foresee anything but downside in the shares...DROPPING COVERAGE. We believe this is now basically a fixed-income story, and as such are dropping coverage of CSK’s shares. Our Reduce/Sell rating and estimates should not be relied upon going forward."

Chesapeake Corporation (Chesapeake) is a supplier of specialty paperboard packaging products in Europe, with interests in North America and Asia. [SM]

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