Catalyst Paper Corporation’s amended restructuring plan includes a provision to sell its interest in Powell River Energy Inc. (PREI).
Catalyst announced the proposed changes to the plan, which is part of the process unfolding under the Companies’ Creditors Arrangement Act, on May 15. The company’s secured and unsecured creditors will be voting on the proposed plan at meetings now scheduled for today, May 23.
Lyn Brown, Catalyst’s vice-president, said there are many steps and specifics to work through yet. “What’s important is that weeks of diligent effort involving many parties and advisors brought us an amended plan that means less debt and better liquidity for the company,” she said. “Operationally, this will help get us back to normal trade terms with our suppliers. And, it’s a plan supported by the court monitor.”
The company’s total debt is reduced by $435 million (US), which is $120 million better than in the original plan, Brown explained. This is made up of two parts: $75 million (US) less in new first lien notes will be issued and $45 million (US) in new first lien coupon notes will be eliminated.
The secured noteholders (2016s) become the new equity owners of Catalyst by converting some of their debt into 14.4 million new common shares, which represent 100 per cent of the new equity.
Of this total, four per cent, or 600,000, of the new common shares, is being made available on a pro rata basis to unsecured creditors who elect not to receive a convenience cash amount (up to a maximum of $5,000) and who choose not to participate in the proceeds pool created by the sale of Catalyst’s 50 per cent partnership interest in PREI.
Under the amended plan, Catalyst has agreed to sell all of its right, title and interest in PREI. “The PREI sales process needs court approval and our joint venture partner in PREI has a contractual right of first refusal,” said Brown. “The mill’s power purchase agreement will continue unchanged.”
PREI is co-owned by Catalyst and Brookfield Renewable Power. PREI owns two hydroelectric dams on Powell Lake and Lois Lake, with a combined generating capacity of 83 megawatts. PREI provides the power generated by its facilities to Catalyst at a fixed rate set out in a power purchase agreement approximating current BC Hydro rates. The hydroelectric facilities supply approximately 40 per cent of the annual power needs of the Powell River mill, although this amount varies depending on hydrological conditions. The power purchase agreement will continue following the sale.
Meanwhile, a Supreme Court of BC judge has approved provisions in an agreement-in-principle (AIP) between Catalyst and the City of Powell River. In exchange for $3 million from the city and Tla’amin (Sliammon) First Nation, Catalyst will discharge the mortgage on PRSC lands and transfer to the city all of its interests in PRSC.
PRSC was incorporated in 2006 as a partnership between the city, Catalyst and Tla’amin. Catalyst sold the company 325 hectares (805 acres) of property not required for local mill operations and PRSC assumed a five-year mortgage of $4.5 million. The mortgage matured in December 2011, but was subject to renewal under the terms of the AIP. The outstanding amount on the mortgage is currently $4.4 million.
The AIP also includes provisions for Catalyst to grant rights of way, leases and rights of occupation over some waterfront lands. As well, Catalyst will transfer to the city its former administration building. In exchange, the city has set the major industrial tax rate at $2.25 million.
PRSC was the brainchild of the city and Tla’amin, Brown said. “We’ve been a willing participant in this unique cooperative venture for almost eight years now. In our current circumstance, and given that our core business is paper and pulp manufacturing not property development, we were also open to their offer to buy out our interest in the partnership and pleased that the monitor supported this transaction.”
The amended plan will now go to creditor vote on May 23, Brown added. “Whatever the outcome of those meetings, we still have much work and many steps ahead of us, including securing adequate exit financing, before we’re at the point to successfully emerge from creditor protection.”
