VRS Notes

JPM Report 6/23/08

• Pure play on North American Coated paper markets

• Private equity manages over 50% of total coated paper capacity after NewPage’s acquisition of Stora Enso’s North American coated paper business

• Estimating demand for coated paper to rise 1-3% annually long-term

• Concerns over soaring input costs as well as short-term economic weakness

• North America imports roughly 30% of coated paper primarily from Europe

• Domestic producers have enjoyed pricing power – up 13% this year over first half 07

• Verso’s concentration in rolled paper (versus sheet) and lightweight (customers enjoy lower shipping costs) puts them in more attractive part of industry

• 1Q 2008 catalog circulation declined 4% and standard-A mail fell 6%

• A strengthening dollar would make imports more attractive and likely pressure Verso’s sales

• Apollo still owns 73% of VRS – uncertainty of if/when they will liquidate

• Between 2004 and present, a significant amount of production capacity has been removed

• There is 500k to 1mm tons of excess coated paper in the European market

• EPS estimates of 0.50 in FY 2008 and 1.60 in FY 2009

  • Based on higher selling prices, stronger volumes, lower interest expense

• Management plans to use free cash flow to pay down debt from current $1.25 billion