Royal Interco: $180M Sale Rescues Private-Label Tissue Maker in 69 Days

Royal Interco, LLC, the Phoenix-based private-label paper products manufacturer operating as Royal Paper, filed for chapter 11 bankruptcy protection on April 8, 2025, in the U.S. Bankruptcy Court for the District of Delaware. The company, which supplied toilet paper, paper towels, and napkins to grocery retailers including Trader Joe's, Kroger, Aldi, and Whole Foods, entered bankruptcy with approximately $205 million in outstanding secured debt and a stalking horse agreement with Italian tissue manufacturer Sofidel America Corp.

The bankruptcy followed a series of operational and financial challenges beginning with a February 2024 distribution center fire that disrupted shipments at a time when the company was already dealing with labor shortages and supply chain disruptions. These operational setbacks triggered trade credit deterioration, with Royal Paper's payment metrics falling to approximately 40% past due and average days beyond terms climbing above 30 days—triple the industry average. When the company's senior secured debt matured on December 31, 2024, the company did not secure refinancing and moved toward a structured sale process.

The case proceeded through a section 363 sale in which competitive bidding increased the price. Sofidel's initial stalking horse bid of $126 million ultimately climbed to over $180 million following an auction on May 15, 2025. The transaction closed on June 16, 2025, 69 days after filing, as consolidation continued in the North American tissue paper industry amid volatile pulp prices, tight margins, and capital-intensive operations.

Company Background and History

Royal Paper began in 1992, when the company was founded in Phoenix, Arizona as a family-owned business with a single converting line supplying paper napkins and bath tissue to local retailers. For its first 16 years, the company operated as a converter, purchasing parent rolls from paper mills and transforming them into finished consumer products. This changed in 2008, when Royal Paper made a capital investment to vertically integrate its operations by constructing a paper mill in Gila Bend, Arizona, approximately 60 miles southwest of Phoenix. The Gila Bend facility enabled in-house parent roll production, reducing the company's dependence on third-party suppliers and providing greater control over costs and quality.

The Gila Bend mill featured water recycling technology that the company said used 50% less water than industry standard facilities. Royal Paper described itself as a manufacturer of 100% Grade A recycled paper in the United States, using recycled fiber as its primary raw material input.

Private equity entry and management transition. Ownership changed in November 2018, when Gridiron Capital announced its partnership with Royal Paper, acquiring an 80% majority stake in the business. The investment brought a new management team: Kevin Otero, previously Vice President of Global Operations at Procter & Gamble, was named Chief Executive Officer, while Sunil Kanuga took the Chief Operating Officer role and Samir Kanuga was promoted to Chief Financial Officer. At the time of the investment, Royal Paper operated three manufacturing facilities with over 1.1 million square feet of fully integrated production and distribution space.

Gridiron Capital's investment thesis centered on national expansion. The private equity firm, which focuses on lower middle-market companies across defense, government services, and specialized industrial sectors, saw Royal Paper as a platform for consolidation in the fragmented private-label tissue market. In December 2020, Royal Paper acquired Sun Paper Company, a Duncan, South Carolina-based tissue manufacturer that had been a top supplier of bath tissue, towels, napkins, and facial tissue in the Southeast. The acquisition gave Royal Paper coast-to-coast manufacturing capability and expanded its geographic reach beyond its Western base.

Operations at filing. By the time of its bankruptcy filing, Royal Paper operated a vertically integrated business model across four facilities. The Gila Bend, Arizona paper mill housed two tissue machines with annual production capacity of approximately 61,000 metric tons of parent rolls. Two converting facilities in Phoenix, Arizona transformed these parent rolls into finished products, while the Duncan, South Carolina facility acquired from Sun Paper served Eastern markets. Warehousing and distribution centers were co-located with the converting plants, streamlining logistics for the company's foodservice and janitorial/sanitary customers.

Major Customers and Market Position

Royal Paper built its business as a private-label manufacturer, supplying tissue products that retailers sell under their own store brands. This positioned the company within a segment that typically holds 30-40% of retail tissue unit sales in developed markets. The company's customer roster included major grocery retailers: Trader Joe's, Kroger, Aldi, and Whole Foods.

The private-label business model involves large retail customers and limited pricing power, as those customers can shift volume to competing manufacturers. When Royal Paper experienced operational difficulties, the company had limited capacity to absorb the financial impact.

At the start of 2024, Royal Paper entered the year with projected revenues of approximately $220 million and roughly 105 active customers. The company's products served two primary end markets: the away-from-home foodservice sector (restaurants, cafeterias, hotels) and the janitorial/sanitary market (office buildings, schools, healthcare facilities). These commercial and institutional channels represent a distinct market from consumer retail, though Royal Paper's private-label business also touched consumer shelves through its grocery retail partnerships.

The Path to Bankruptcy

The events leading to Royal Paper's chapter 11 filing included multiple operational setbacks, market pressures, and capital structure constraints that converged in early 2024.

Distribution center fire and operational disruption. In February 2024, a fire struck one of Royal Paper's distribution centers, disrupting the company's ability to fulfill customer orders. The company was already dealing with labor shortages across the manufacturing sector. With labor constraints limiting production and distribution capacity impaired, Royal Paper could not meet customer demand for roughly the first half of 2024.

Retailers maintain vendor performance expectations, and suppliers that cannot fulfill orders risk losing shelf space to competitors. The operational disruptions that began in early 2024 affected Royal Paper's customer relationships and financial position.

Trade credit deterioration. The operational challenges triggered a deterioration in Royal Paper's trade credit metrics. Suppliers tightened credit terms as they observed the company's struggles and grew concerned about repayment. This credit contraction limited Royal Paper's access to raw materials, including the pulp fiber that serves as the primary input for tissue manufacturing.

Industry credit analysts noted that Royal Paper's payment performance deteriorated during the summer of 2024. The company's average days beyond terms climbed above 30 days, compared to an industry average of approximately 10 days. About 40% of Royal Paper's trade credit balance was past due. These metrics indicated liquidity stress.

Pulp price volatility. Royal Paper's distress coincided with unprecedented highs in pulp prices during 2024. The global tissue industry is heavily exposed to international pulp and chemical prices, which are typically denominated in U.S. dollars. Wood pulp prices proved highly volatile during this period, driven by supply chain disruptions, geopolitical tensions, and demand fluctuations. These input cost pressures compressed margins with limited ability to pass costs through to price-sensitive retail customers.

Debt maturity and refinancing failure. The maturity of Royal Paper's senior secured debt on December 31, 2024, added pressure. With the company's operations still disrupted and its trade credit in distress, the company did not secure refinancing of the maturing debt. The company and its stakeholders negotiated a structured sale process through a court-supervised auction.

The 363 Sale Process

Royal Paper entered chapter 11 with a prearranged sale transaction rather than a traditional reorganization plan. The company filed its section 363 sale motion on the same day as the bankruptcy petition, April 8, 2025, with Sofidel America Corp. already committed as the stalking horse bidder. This prepetition preparation enabled a compressed timeline that would take the case from filing to closing in just 69 days.

Stalking horse agreement and bidding procedures. Sofidel's initial stalking horse bid valued the transaction at $126 million, covering Royal Paper's four manufacturing facilities: the paper mill in Gila Bend, Arizona, both Phoenix converting facilities, and the Duncan, South Carolina converting operation acquired from Sun Paper. The stalking horse agreement provided Sofidel with certain protections—including a break-up fee and expense reimbursement—in exchange for committing to purchase the assets and establishing a floor for competitive bidding.

The assets covered under the stalking horse agreement represented essentially all of Royal Paper's operating infrastructure. The Gila Bend mill's annual production capacity of approximately 61,000 metric tons would integrate into Sofidel's North American manufacturing network, while the three converting facilities would expand the company's ability to serve the private-label market that Royal Paper had developed over three decades.

Competitive auction results. The auction took place on May 15, 2025, and competitive bidding drove the final purchase price to over $180 million—more than $50 million above Sofidel's original stalking horse bid. The price increased by about 43% from the floor bid.

At the conclusion of the auction, Sofidel was declared the successful bidder. The final Asset Purchase Agreement was signed on May 20, 2025, incorporating the auction results and final negotiated terms. The U.S. Bankruptcy Court approved the sale on May 22, 2025, and the transaction closed on June 16, 2025.

Employment transition. As part of the acquisition, Sofidel made employment offers to a significant portion of Royal Paper's skilled workforce, supporting continuity for the acquired facilities.

DIP Financing and Liquidity

Delaware bankruptcy judge approved interim access to debtor-in-possession financing shortly after the petition date, providing Royal Paper with the liquidity necessary to maintain operations during the sale process. NXT Capital served as the DIP agent, providing a $10 million facility structured as a priming DIP loan with first-priority liens on the debtor's collateral.

The DIP facility funded operations during the 69-day period between filing and sale closing. NXT Capital's role as both prepetition secured lender and DIP provider is a common structure in chapter 11 sales.

Creditor Matters and Settlement

The bankruptcy included contested issues. Both the U.S. Trustee's Office and the Official Committee of Unsecured Creditors raised concerns about the sale process and potential administrative insolvency—a situation where estate assets prove insufficient to pay administrative claims in full. These objections were resolved through a global settlement agreement that addressed multiple stakeholder concerns.

Unsecured Creditors' Committee. The Official Committee of Unsecured Creditors, represented by Lowenstein Sandler LLP, advocated for the interests of trade vendors and other unsecured creditors whose recoveries depended on the sale proceeds after satisfaction of secured claims and administrative expenses. The committee's primary concern centered on whether the estate would have sufficient funds to pay administrative claims and provide meaningful recovery to unsecured creditors.

Global settlement agreement. The resolution of objections came through a settlement that addressed concerns from both the U.S. Trustee and the creditors' committee. The settlement provided that clawback actions would not be pursued against ordinary course trade vendors, limiting preference exposure for payments received in the 90 days before the bankruptcy filing.

Gridiron Capital settlement. The estate also resolved issues with Gridiron Capital, the private equity sponsor whose equity was eliminated in the sale. The settlement with Gridiron and its affiliated entities—Gridiron RP Investors, LLC; GC Fund III RP AIV, L.P.; and Gridiron Strategic Advisors Fund III, L.P.—addressed inter-creditor issues between Tranche A and Tranche B loans in the prepetition capital structure. The settlement included releases that brought finality to potential claims among the various stakeholder groups.

The Acquirer: Sofidel's North American Expansion

Sofidel Group, the successful bidder for Royal Paper's assets, is a global tissue paper manufacturer. Founded in 1966 in Porcari, in the Lucca province of Italy, Sofidel has grown into one of the world's largest manufacturers of paper for hygienic and household use. The company is known in Europe for its Regina brand.

Sofidel's U.S. presence dates to 2012, when the company established Sofidel America through the acquisition of Cellynne, a tissue company with operations in the southeastern United States. Since that initial entry, Sofidel has expanded its North American manufacturing footprint through organic growth and acquisitions. Today, Sofidel America operates 14 production plants across 11 U.S. states.

Clearwater Paper acquisition. The Royal Paper transaction follows Sofidel's October 2024 acquisition of the tissue division of Clearwater Paper Corporation for $1.06 billion, which elevated Sofidel to the fourth-largest tissue paper producer in North America. The Clearwater acquisition added scale.

The Royal Paper acquisition continues this strategic expansion, adding vertically integrated manufacturing capacity and an established private-label customer base. The Gila Bend mill's approximately 61,000 metric tons of annual capacity, combined with three converting facilities across Arizona and South Carolina, adds geographic reach and production capacity.

Industry Context: Consolidation and Cost Pressures

Royal Paper's bankruptcy and subsequent sale to Sofidel reflects broader dynamics in the global tissue paper industry. The tissue paper market, valued at approximately $24.97 billion globally in 2024, is projected to grow to $33.76 billion by 2033 at a compound annual growth rate of 3.41%.

Raw material volatility. The tissue industry's primary input—wood pulp—exhibited price volatility during 2024, reaching unprecedented highs that compressed manufacturer margins. Unlike consumer packaged goods companies that can pass through cost increases via shelf price adjustments, tissue manufacturers serving the private-label market operate with limited pricing power. Retail customers resist supplier price increases and can shift volume to competitors, leaving manufacturers to absorb input cost fluctuations.

The pulp price environment reflects broader supply chain dynamics that have characterized global commodities since the pandemic. Supply chain disruptions, geopolitical tensions affecting key producing regions, and demand fluctuations from the Chinese market have all contributed to price instability.

Integration and consolidation. The industry response to cost pressures has been consolidation, with acquirers absorbing smaller manufacturers to achieve scale efficiencies. Vertical integration—controlling both papermaking (parent roll production) and converting (finished product manufacturing)—provides advantages in cost control and supply chain reliability. Larger integrated producers can optimize production across facilities, shift volume to minimize costs, and leverage purchasing power for raw materials.

Private-label market dynamics. The private-label segment where Royal Paper competed typically accounts for 30-40% of retail tissue unit sales in developed markets. During periods of consumer price sensitivity—such as the inflationary environment of 2022-2024—private-label market share can surge 2-4 percentage points as consumers trade down from branded products. This dynamic suggests continued demand for private-label tissue, but the suppliers serving that demand increasingly need scale to survive. Private-label market dynamics. The private-label segment where Royal Paper competed typically accounts for 30-40% of retail tissue unit sales in developed markets. During periods of consumer price sensitivity—such as the inflationary environment of 2022-2024—private-label market share can surge 2-4 percentage points as consumers trade down from branded products.

Professional Retentions

The Royal Paper bankruptcy engaged restructuring professionals across debtor, creditor, and acquirer constituencies.

Debtor Professionals.

Creditor Committee Professionals.

Other Professionals.

Post-sale matters. Following the sale closing, the estate established HRHI Wind-down, LLC to administer remaining matters including claims objections, professional fee applications, and collections of receivables for remittance to Sofidel. The wind-down entity structure is common in 363 sale cases, separating ongoing estate administration from the buyer's operations of the acquired business.

The estate also sold Employee Retention Credits (ERCs), monetizing pandemic-era tax credits that remained available to the estate.

Key Timeline

Frequently Asked Questions

When did Royal Paper file for bankruptcy? Royal Interco, LLC (operating as Royal Paper) filed for chapter 11 bankruptcy protection on April 8, 2025, in the U.S. Bankruptcy Court for the District of Delaware. The jointly administered cases were assigned to Judge J. Kate Stickles under case numbers 25-10675 through 25-10677.

Who bought Royal Paper out of bankruptcy? Sofidel America Corp., the U.S. subsidiary of Italian tissue manufacturer Sofidel Group, acquired substantially all of Royal Paper's operating assets through a section 363 sale. The transaction closed on June 16, 2025.

How much did Sofidel pay for Royal Paper? The final purchase price exceeded $180 million, representing an increase of more than $50 million (43%) above Sofidel's original stalking horse bid of $126 million. The competitive auction process conducted on May 15, 2025 generated the price increase.

What products did Royal Paper manufacture? Royal Paper manufactured private-label toilet paper, paper towels, napkins, and tissue products. The company served both the away-from-home foodservice market and the janitorial/sanitary market, with products appearing on shelves at Trader Joe's, Kroger, Aldi, and Whole Foods under retailer store brands.

What caused Royal Paper's bankruptcy? Multiple factors drove the filing: a February 2024 distribution center fire that disrupted shipments, persistent labor shortages, supply chain challenges, deteriorating trade credit (approximately 40% past due with days beyond terms above 30), unprecedented pulp price volatility in 2024, and the maturity of senior secured debt on December 31, 2024.

Who was Royal Paper's private equity owner? Gridiron Capital acquired an 80% majority stake in Royal Paper in November 2018, bringing in a new management team including CEO Kevin Otero (formerly of Procter & Gamble). Gridiron's equity was eliminated in the Sofidel sale, with related claims resolved through a post-sale settlement agreement.

How long did the bankruptcy case last? The sale process moved quickly, with the transaction closing in approximately 69 days from the petition date. Royal Paper filed on April 8, 2025, and the Sofidel acquisition closed on June 16, 2025.

What happened to Royal Paper employees? As part of the acquisition, Sofidel made employment offers to a significant portion of Royal Paper's skilled workforce. Employees at the Gila Bend, Phoenix, and Duncan facilities transferred to Sofidel.

What facilities did Sofidel acquire? Sofidel acquired four facilities: the paper mill in Gila Bend, Arizona (with approximately 61,000 metric tons of annual capacity), two converting facilities in Phoenix, Arizona, and one converting facility in Duncan, South Carolina that Royal Paper had acquired from Sun Paper Company in 2020.

Why is Sofidel acquiring U.S. tissue manufacturers? Sofidel has pursued North American expansion in the world's largest tissue market. Following its October 2024 acquisition of Clearwater Paper's tissue division for $1.06 billion, Sofidel is now the fourth-largest tissue paper producer in North America. The Royal Paper acquisition adds capacity and an established private-label customer base.

Who is the claims agent for Royal Interco?

Epiq Corporate Restructuring, LLC serves as the claims and noticing agent. The firm maintains the official claims register and distributes case notifications to creditors and parties in interest.

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