Tembec 3-month TSX chart

Forest products company Tembec Inc. said Wednesday it will convert about $1.2 billion US of its debt into shares, a move the company expects will cut its annual interest costs by $67 million.

Under the plan, which was unveiled prior to the opening of stock markets, all of the Montreal-based company's existing shares will be surrendered, and 100 million new common shares will be issued.

The debt holders will get 95 per cent of the new shares, while current stockholders will get the remaining five per cent.

The company said it trying to marshal support among its debt holders for its plan. A vote on the deal is slated for Feb. 22 in Montreal.

"With this transaction, Tembec is delivering on its key commitment to explore and pursue strategic alternatives to reduce its debt levels and improve liquidity," said Guy Dufresne, the chairman of the company's board of directors.

"The board and management believe this transaction accomplishes Tembec's objectives. It is a comprehensive recapitalization that creates a stronger company and allows for the pursuit of greater opportunities," Dufresne said in a statement.

Tembec is among the forest products companiesthat have been hurting lately, hard hit by the rise in the Canadian dollar and other factors. In November, the company reported an operating loss of $43 million in the fourth quarter.

In September, the company briefly withdrew from the North American lumber market before returning with a list of higher prices.Over the summer and fall, the companyidled some mills or curtailed production at others. The mills are in Ontario, Quebec and B.C.