Investors dumped Mercer International Inc. bonds after the pulp maker filed a restructuring request that would erase the covenant mandating equal treatment of all creditors. By seeking to cherry‑pick lenders, Mercer exposed bondholders to heightened risk, prompting a sharp price decline in secondary markets.

The filing signals that Mercer, already wrestling with weak demand for its wood‑based products, is desperate to renegotiate its debt stack. Removing the parity clause would allow the company to grant more favorable terms to a select group of lenders, potentially sidelining existing bondholders who expected uniform recovery rates. Market participants interpreted the move as a red flag about the firm’s cash‑flow outlook.

Credit analysts note that such a breach of standard creditor protections is rare in the pulp industry, where debt covenants typically preserve parity to maintain financing stability. The proposal could set a precedent, prompting lenders to reassess exposure to companies that might attempt similar restructurings. Investors now face uncertainty over the eventual recovery hierarchy.

Ultimately, the bond sell‑off reflects heightened skepticism about Mercer’s restructuring strategy and its ability to meet obligations without disadvantaging existing debt holders. The episode underscores the importance of creditor equal‑treatment clauses in preserving market confidence.