Catalyst Paper Corp. Debt

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Catalyst Paper to seek court-ordered creditor protection (1/31/12)

By GORDON HAMILTON, VANCOUVER SUN January 31, 2012 2:06 PM

Catalyst Paper said it is seeking court-ordered creditor protection Tuesday after workers at its Crofton pulp and paper mill rejected a new labour contract that was key to a voluntary restructuring plan.

Catalyst, the largest pulp and paper company on the Coast, is seeking an order through the B.C. Supreme Court to commence proceedings under the Companies’ Creditors Arrangement Act. By pursuing restructuring under the CCAA, Catalyst is putting all its obligations, from debts to labour contracts and pension arrangements, into a restructuring process with an uncertain outcome, analyst Kevin Mason, of ERA Forest Products Research said in an interview.

“At the end of the day, in most cases that we see, it is the workers who take a pretty good haircut,” Mason said. “You have definitely opened yourself up to a lot more risks. The hope is you can get this thing done quickly and get it over with, but this could drag on for several years. It is not pleasant for anyone.”

Mason said he expects the company that emerges from creditor protection will be leaner and have less debt than it was proposing under its voluntary plan.

Catalyst has 1,549 employees in B.C. and operates mills at Crofton, Port Alberni and Powell River. It also operates a recycled newsprint mill at Snowflake, Arizona. Five of the six union locals at the Canadian mills had voted to accept the contract, which contained concessions. The 380 members of the Crofton local of the Pulp, Paper and Woodworkers of Canada voted it down by 58 per cent.

Catalyst said that it intends to continue operations as usual and that it will meet obligations to its employees and suppliers during the CCAA process. By seeking creditor protection, Catalyst expects the court will order all proceedings on the part of creditors to be stayed. The company had defaulted on a $21 million bond interest payment Dec. 15.

The company’s total debt load is $810 million but the value of Catalyst is “substantially less than $810 million, if half that amount,” according to an affidavit filed in court by chief financial officer Brian Baarda.

Catalyst’s move brought a swift response from the rival Communications, Energy and Paperworkers Union, whose members had supported the new contract.

“We are extremely disappointed that after weeks of working toward a solution, it has come to this,” CEP western region vice-president Jim Britton said in a news release. “This is a potentially enormous blow to workers and communities on Vancouver Island and the Sunshine Coast which rely on the Catalyst mills for employment, business, and tax revenue.”

The CEP is calling for a national assistance program for the forest sector. Catalyst is the latest of a number of papermakers to go into bankruptcy or creditor protection. At issue for the union is the absence of sufficient legislated protection for workers once companies seek CCAA.

“Speaking from experience with the CCAA, the future doesn’t look good because we know exactly what’s next: Workers’ money will be used to pay off creditors,” CEP national president Dave Coles, a former worker at the Crofton mill, said in a news release. “This country’s bankruptcy act forces workers to the back of the line when it comes to collecting what is owed.”

A new contract with workers at its three coastal British Columbia pulp and paper mills was one of two conditions the company had to meet by Jan. 31 in order to proceed with a debt-for-equity restructuring that would have trimmed $315.4 million off its $810 million debt. The second condition, approval of the deal by a two-thirds majority of bondholders also appeared to be failing. Secured bondholders had accepted the deal but only 55 per cent of unsecured bondholders had agreed to the arrangement by Jan. 31.

When the papermaker announced its voluntary restructuring plan Jan. 14, it stated that if it was unable to gain the necessary support, it would proceed under CCAA.

“Our debt restructuring objective remains clear and unchanged though our path forward was altered by recent setbacks,” Catalyst president Kevin Clarke said in a news release. “Without the new labour agreement, and without two-thirds support of 2014 noteholders, the economics of the previously announced consensual restructuring transaction were undermined.

“The board, management and our advisers believe this approach will best facilitate the completion of a recapitalization transaction that delivers the improvements to our liquidity and capital structure which are necessary to put our company on firm financial and competitive footing in the current business and economic environment.”

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