CHESAPEAKE CORPORATION, which owns one of the North’s largest packaging companies, has agreed a financial lifeline with one of its key lenders after failing to meet an interest payment.

The US specialist packaging giant, which owns Boxmore Plastics, has extended its forbearance agreement on a $250 million (€187 million) secured credit facility until December 23rd.

Chesapeake has been engaged in a process to restructure its finances. It had previously confirmed its liabilities exceed its assets. The Virginia head-quartered group has warned it could seek Chapter 11 bankruptcy protection in the US. But Chesapeake, which also operates four paperboard packaging plants in the Republic, said only its US subsidiaries would be affected by the bankruptcy filing.

Commenting on the extended forbearance agreement, Andrew J Kohut, president and chief executive officer, said it would provide the group with “additional time to finalise arrangements for the short-term and long-term financial liquidity and financial restructuring we need”.

Under the terms and conditions of the agreement the lenders have agreed to “forbear from exercising their rights against the corporation” in relation to existing financial condition covenant defaults.

The lenders have also agreed not to take action against Chesapeake’s failure to pay an interest payment due on November 15th. The lenders have, however, reserved the right to terminate the foreberance agreement immediately in certain circumstances.

Chesapeake has stated it “expects to comply” with the requirements but if it is not able to, or the forebearance agreement terminates, it could be required to pay back the entire amount of the secured credit facility. If this were to happen Chesapeake has warned it would have a “material adverse effect on the business”.