Catalyst Paper Corp. (fka CTLFQ)

[56Chevy]

I'll put your question/comment in italics and follow it with a very basic comment.

.....why would these people want to exchange senior secured notes for worthless shares??

It would be helpful if you reconsider or reframe what you think creditors want/need/desire when involved with a BK situation. Creditors don't "want" to accept any alternatives other than cash. If they have to accept something other than cash it's most likey they were forced into it or had no other viable option. They reluctantly exchange something of equal value. (Sometimes they're offered a combination of cash and or new shares or new notes/etc).

Creditors, such as the Senior Secured Note holders for example, are usually always banks...and banks don't desire to take over another business...or property ...or merchandise ...or buildings...or a house ...or a car... or a boat. If they have to accept an alternative to cash they want the most liquid asset they can get their hands on. Paper mills aren't easy to liquidate/sell...neither are houses or cars or boats,etc. It can get messy if a creditor is forced into taking over things like paper mills with thousands of employees. It could take years (sometimes decades) to sell a business or property...or large factories...all of these come with no guarantee they can be sold for what was owed. The losses can get worse for them over time. Not good.

Bankruptcy is all about legally recovering as much of the Creditor's money as possible. period. In every bankruptcy I've been a part of there is a group of equity holders who feel entitled to a recovery...they see themselves as having the same rights to the spoils as any creditor. Nothing could be farther from the truth. When you own equity you are the debtor. You're the pay-er not the pay-ee.

I'll ask you the same question/comment you posed to me - If what they're being offered is worthless why would they do it? The answer is they wouldn't accept worthless shares...which means the shares they're being offered must be different than the ones you hold..and if they're different they must be new. Yours have been cancelled (or soon will be) and theirs will be newly issued. Is that fair? Yes. They paid your bills...it wasn't a gift...therefore they should own the entity.

In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets...negative equity exists.

Businesses can be considered, for accounting purposes, sums of liabilities and assets. After liabilities have been accounted for the positive remainder is deemed the owner's interest in the business.

All the secured creditors are paid against proceeds from assets. Afterward, a series of creditors, ranked in a priority sequence, have the next claim/right on the residual proceeds. Ownership equity (which is what you hold) is the last claim against assets, paid only after all other creditors are paid. In such cases where even creditors could not get enough money to pay their bills, nothing is left over to reimburse owners' equity. Thus owners' equity is reduced to zero.

-tbc-