Labor, supply chain challenges lead to bankruptcy filing

In a move brought on by operational disruptions and supply chain challenges, Royal Paper, a Phoenix-based tissue paper producer for the retail and away-from-home market, has filed for bankruptcy and reportedly agreed to a deal to sell its business.

Royal filed for Chapter 11 protection April 8 in the U.S. Bankruptcy Court for the District of Delaware, listing assets and liabilities of between $100 million and $500 million in its petition.

“Our team has been working diligently to strengthen our financial foundation in the face of difficult macroeconomic circumstances and other challenges facing Royal,” Chief Executive Steve Schoembs says in a mid-April statement.

Sofidel America Corp., a Horsham, Pennsylvania-based business unit of Italian tissue maker Sofidel Group, has entered into a $126 million “stalking horse” purchase agreement to acquire “substantially all” of Royal’s assets. The stalking horse deal sets the price of the assets and is subject to competing offers.

“Our team has been working diligently to strengthen our financial foundation in the face of difficult macroeconomic circumstances and other challenges facing Royal.” – Steve Schoembs, chief executive, Royal Paper

Royal also has lined up Chapter 11 financing to fund the bankruptcy and retained Chicago-based restructuring adviser Novo Advisors LLC and Livingstone Partners LLC, also in Chicago, as investment bankers.

“Entering into an agreement with Sofidel provides stability for our business, its customers and our employees while we continue to run our sale process,” Schoembs says. “I want to thank our incredibly talented employees for their continued focus and hard work and our customers, partners and suppliers for their support.”

According to a report from Bondoro, Royal entered 2024 with “a strong order book” and projected revenue of about $220 million across about 105 active customers. However, operations were disrupted materially in February 2024 by a fire at one of its distribution centers as the company also faced ongoing labor shortages.

Royal then failed to meet customer demand for roughly the first half of 2024, according to the report, leading to reduced revenue, cash depletion and “strained customer relations.”

“With senior secured debt maturing [Dec.] 31, 2024, Royal Paper faced a liquidity crunch in mid-2024 as suppliers tightened credit terms amid operational challenges and repayment concerns,” Bondoro says. “Reduced credit availability, combined with the company’s inability to timely pay suppliers, limited access to raw materials—most critically, pulp—hindering order fulfillment.”

Royal is a vertically integrated tissue maker with manufacturing and distribution assets across the U.S. producing bath tissue, paper towels, facial tissue and napkins for retail chains including Trader Joe’s, Aldi, Whole Foods, Kroger and Meijer. The company also makes 100 percent-recycled paper products under its Earth First brand, using 80 percent Grade A postconsumer recycled material.

Royal’s paper mill in Gila Bend, Arizona, features two tissue machines with approximately 61,000 metric tons of annual production capacity. It also operates three converting facilities, two in Phoenix and one in Duncan, South Carolina. Warehousing and distribution centers are co-located with its converting facilities.

Sofidel America, meanwhile, has made several large-scale investments in the U.S. over the last year.

In January 2024, it acquired a tissue mill in Duluth, Minnesota, from ST Paper, a Oconto Falls, Wisconsin-based tissue paper producer. At the time of the purchase, CEO Luigi Lazzareschi said the move allowed Sofidel to “immediately” meet growing demand, which he said saw a significant upturn in 2023.

Following the Duluth acquisition, in November 2024, Sofidel finalized its purchase of Clearwater Paper Corp.’s tissue business in a deal worth about $1.06 billion—the largest transaction in the company’s history. The Clearwater deal included sites in Shelby, North Carolina; Lewiston, Idaho; Elwood, Illinois; and Las Vegas.