by Laura Walz [email protected] Catalyst Paper Corporation has made a formal request to the Communications, Energy and Paperworkers’ Union to start bargaining its collective agreement early.
Mike Verdiel, president of Local 76 in Powell River, said representatives from all of the union’s locals are meeting in Vancouver this week to discuss the company’s request. “They’re saying that looking forward, it looks like things are getting tighter, so they want to try and have us get the collective agreement in place,” he said. “Then, when they’re dealing with their lenders, they have some idea of what their costs are going to be going forward.”
The current collective agreement ends on April 30, Verdiel added. “It’s not the first time that we’ve been asked to go to the table early, either,” he said.
Lyn Brown, Catalyst’s vice-president of marketing and corporate responsibility, said Catalyst expects a busy year on the bargaining front, and has been encouraging union locals to begin talks early. “We haven’t entered into formal talks at this point but are certainly open to doing so,” she said. “In the meantime, we continue to update employees on the state of the business and current competitive factors.”
A “going concern” note was included in the company’s annual report issued earlier this year and updated in the third quarter report. It stated, in part, that the company is currently reviewing alternatives to address its capital structure. “Should those alternatives fail to address our capital structure our substantial debt may impair our financial and operating flexibility,” it stated.
Brown said the company stated at the beginning of the year that reducing its debt level is a priority. “We started a review process in late June and while we won’t prejudge outcomes or comment on the status of talks with bondholders, we are fully focused on addressing this debt issue.”
Paul Quinn, a pulp and paper industry analyst, said Catalyst has more than twice the amount of debt it should have, but it has enough money, or liquidity, to last a while. “Say you’re a homeowner and you owe $300,000 to the bank,” Quinn explained. “You’ve got enough money in your bank account to make the mortgage payments for a while, but you know you just lost your job and at some point you’re not going to be able to fulfill your obligation. That’s the situation Catalyst is in.”
Quinn pointed out that Catalyst owes a major interest payment on one of its bonds on December 15 and it’s highly suspected in the market that Catalyst will strategically default. A non-payment on its notes would automatically trigger a restructuring of the balance sheet, he explained. “The speculation is that they don’t make that and they default on their obligation and that triggers a restructuring,” he said.
Catalyst has advisors “working on them to try to refinance their balance sheet,” Quinn said. “The issue is that there are bondholders that are owed this money. Basically the company is going to them and saying, we know we have bonds outstanding, we can’t really support that kind of debt, we need you to take a hair cut.”
The bondholders are saying not right now, Quinn said, or what are you offering. “It’s hard to get an agreement until you trigger something or do something that is going to cause a default and cause some of those guys to get in line,” he said.
Quinn’s scenario is similar to what many homeowners in the United States did when they lost their jobs. “They’ve lost all their equity in the house and their house is worth $200,000 less than the value that they have as mortgage,” he said. “They declare bankruptcy and start again. That is what I think will happen with Catalyst.”
What is hurting Catalyst, Quinn said, is the onerous interest payments that result from the onerous debt. “They suspend that and hopefully the sides get together and they work out what is the ultimate balance sheet that is going to be sustainable long term and what does that mean,” he said.
It would be detrimental to the bondholders if the company declared bankruptcy and the assets were sold, Quinn said, because there are very few buyers for the assets. “They would get even a lower percentage of what they’re owed back,” he said. “It’s better for them to keep the business running, to recapitalize it and restructure the balance sheet.”
