Verso Paper Corp. (VRS) OUTPERFORM [V] C. Dillon
CP: US$ 2.90 TP: US$ CAP: US$ 150.9m
Last Call For Black Liquor, Raising Estimates

Despite this "Last Call", Free Cash Flow to Stay - Over the past two quarters, Verso has reduced its net debt by $175 million
($3.35 per share) primarily due to realized alternative fuel mixture ("black liquor") credits. In the fourth quarter, we estimate
that the company will reduce net debt by another $72 million ($1.38 per share) due to expected "black liquor" cash benefits of
about $45 million, working capital reduction and essentially break even free cash flow from operations. Looking ahead, we
expect a modest additional reduction in net debt during 2010 despite our loss projection, as the company will continue to
spend about $1.35 per share less than its depreciation plus the expected receipt of the final $15-$20 million in black liquor
credits earned this year (but actually received in early 2010).

Coated Paper Comes Alive - Management indicated on the quarterly conference call that coated paper volumes jumped 46%
in the third quarter versus the second quarter level and was almost as strong as volumes in the 2008 third quarter. The
company believes that US coated paper demand should turn positive during 2010 based on its conversations with customers
(magazine publishers and catalogue printers).

Raising 2010 Estimate - Based on slightly better volume assumptions and lower net debt, we are narrowing our 2010 loss
estimate by $0.15, to $(1.35). We maintain our view that VRS will earn $0.50 in 2011. We continue to see about $1.50 per
share in peak year (expected to be about 2013) EPS based on margins that are lower than industry peaks in the mid-1990's
and late-1980's. We are raising our mid-cycle EPS estimate by $0.05, to $0.20, to better reflect the company's improved
balance sheet