Montreal-based AbitibiBowater Inc., the world's biggest newsprint maker that has seen plunging demand for its core product, says it has filed for bankruptcy protection in the United States and will ask Canadian courts for protection on Friday.

The debt-ridden company says it owes more than $2 billion and has been trying to get extensions on loans made by two subsidiaries.

No job cuts have yet been announced for AbitibiBowater's more than 14,000 employees, of which 7,500 are in Quebec.  The company says normal day-to-day operations will continue during the restructuring process.

Emergency funding

In a related matter, Abitibibowater says it has struck a deal with Fairfax Financial Holdings Ltd., a major shareholder, and other investors for about $200 million in emergency financing.

But Paul Bagnell from the Business News Network told CTV News at Noon that the financing is only a short-term solution.

"In the longer term, the company has got to reach an agreement with its creditors," he said.

"They've got to convince those bond holders and banks to either wait longer for their money or to accept less than they're fully owed or likely accept stock in a newly configured (company) for money owed."

Debt predates merger

AbitibiBowater was created from the 2007 merger of predecessors Abitibi-Consolidated and Bowater Inc., which created one of the world's largest paper producers.

Abitibi had been saddled with heavy debt even before the merger and it had hoped that joining forces with the U.S. paper giant would finally put the company on a sounder footing.  That hasn't been the case and the situation has worsened in recent months with newspapers shutting down or going online.

"Everywhere you look, the newspaper publishing industry is under great pressure and that has real consequences for the company," said Bagnell.

Where to cut?

Last year, Abitibibowater announced the shutdown of a century-old paper mill in Grand Falls, Nfld., cutting more than 800 jobs, as part of an earlier round of streamlining to deal with excess capacity and lower demand.  The company would not say Thursday if and where it would make future cuts.

"Let's not speculate in the future about what actions are going to be undertaken at any given facility or across the company," said spokesman Seth Kursman.

But Bagnell says more cuts are inevitable.

"Unfortunately, I think it's unlikely that Abitibi can get through Chapter 11 in the U.S. or the equivalent here in Canada without at least downsizing some of its facilities here," he said.

"One of the big problems with this company and this industry is that it's producing too much news print for a declining market."