Catalyst ready for sales process says president

 UPDATED May 30, 2012:  Catalyst Paper Corporation is ready for the next step in the process after it did not receive the necessary creditor approval for its amended plan of arrangement under the Companies’ Creditors Arrangement Act.

Kevin Clarke, president and CEO, said the company has been fully prepared for every eventuality. “Trust us that we are equally prepared for this next process,” he told the Peak during a phone interview. “In every situation, we’ve proven we’re under control.”

A stalking horse bid by the secured creditors for $275 million is part of the sales and solicitation process that started on Friday, May 25 and lasts for 73 days. Clarke said those 2016 bondholders are in the best position to own the company. “I met with them on Tuesday of this week in New York,” he said. “They are very focused. They are interested in the asset. Many of them have been investors in Catalyst for a long time. They have great confidence in this management team. They are very impressed with what we’ve done collectively as a company.”

A representation of the bondholders have been at the mills, Clarke added. “They toured Powell River and Crofton. I’m encouraged by it and we’ll see that the process needs to play out. Within that process, there’s going to be lots of opportunity and continued things that we’ll pursue to get to the best result.”

Clarke declined to say who the bondholders are because, he said, all of them have the opportunity to trade out and people can trade in during the process.

City of Powell River Mayor Dave Formosa, mayors from Port Alberni and North Cowichan, union leaders and Catalyst representatives met with Premier Christy Clark and government officials yesterday, May 29. Nicholas Simons, MLA for Powell River-Sunshine Coast, said he has had two separate meetings with ministers, trying to ensure that the province is doing everything it can to make sure that pensions and jobs are protected. “I think that the government has so far failed to step up when jobs and pensions are at risk,” he said. “Our communities expect provincial involvement when it’s requested repeatedly.”

Pat Bell, minister of jobs, tourism and innovation, said the province has been working with Catalyst to provide the company with any possible options that would be available to them through training tax credits and working with them and the pension group on restructuring the pension fund. “We have dramatically reduced property taxes on the school tax front for the industrial sector, specifically the pulp and paper sector over the last few years,” he said. “We have worked very, very hard to open up new markets in Asia. I would argue that we’ve worked very closely with them.”

Some of the requests the company has made are not ones that the province thinks are appropriate, Bell added. “They have asked for preferential treatment on electricity and electricity pricing,” he said. “I don’t think it would be fair to offer one company preferential treatment on electricity pricing and not another.”

Bell referred to Pope and Talbot Ltd., a forestry company that went bankrupt in 2008. “The five different assets that Pope and Talbot had in the province of British Columbia when they went through bankruptcy are all operating and are much more sustainable today than they ever were,” he said. “Our preference is still to see Catalyst emerge from creditor protection. That’s what we would like to see. But in the event that it doesn’t, we will certainly be working very hard to make sure that the opportunities for the employees continue to exist and any future ownership of the company is done in a way that is in the best interest of the employees.”

There is an appeal before the court on behalf of the Catalyst salaried employees and pensioners group, said Jim Donnelly, who retired in 2007 after working for the company for 29 years. There is a $115 million shortfall in the pension fund and the group is in the bottom part of the list of creditors. “If this thing goes through as it is proceeding at this moment, it will mean we will lose 35 to 40 per cent, or perhaps more, of our pension,” he said. “I believe that the premier and the cabinet have the ability to change this situation very easily.”

Some pensioners will be financially devastated, Donnelly said.

Meeting results in some action

Representatives from Catalyst Paper Corporation, mayors from the communities where it operates and union officials sat down with BC Premier Christy Clark in her office on Tuesday, May 29.

City of Powell River Mayor Dave Formosa had organized the meeting after Catalyst officials told him they had not been successful in obtaining a meeting with the premier.

Clark gave the group an extra 15 minutes, so the meeting lasted for three-quarters of an hour, Formosa said, instead of a half hour. “The premier said, ‘I am there to help communities, workers and pensioners. We will be here to work for them first. We are concerned about the company. We are not in business. We are not in the business of getting into business, but we hear you, we understand and we’ll see what it is we can do within the parameters of these asks and set point people to work.’”

Formosa said the government agreed to some requests. The group wanted a single-point contact on the issues. Colin Hansen, former finance minister, will be the point man for communities, workers and pensioners. Peter Milburn, deputy minister of finance, will work with the company.

Formosa said the group also asked for support for pensioners. “It looks like we’re going to get what we were asking for, which is to have the pensioners have the ability to opt out of annuities if this thing goes sideways, where they can take out their own money and invest it themselves. But they need an order in council to do that. The premier said she can get that done in a timely fashion, she believes. That was good news.”

Catalyst asked for a backstop for a $50 million loan, Formosa said. “If they come out of CCAA [Companies’ Creditors Arrangement Act], they have issues with their trade accounts payable.”

The company has to pay its bills with cash or within one week, Formosa said, instead of within 30 days. “That attributes to about $60 million in tightening up their cash flow and chequing account. If they had a $50 million backstop by the government, everybody knows they’re going to get paid and it would free up that money for them. Catalyst is not asking for a handout, just a backstop on the working capital loan for a short period of time.”

The company has also asked for assistance in mitigating the cost of returning to the provincial sales tax as it applies to its BC Hydro bill. But the government has said it is reluctant to help one company and not others.

Stalking horse bid now comes into play

A slim margin of Catalyst Paper Corporation unsecured creditors voted down a restructuring plan today, May 23. While most creditors favoured the plan, the vote failed by two per cent to garner the approval of two-thirds of the value of the debts.

The company said its amended plan of arrangement under the Companies' Creditors Arrangement Act failed to gain approval from 66.6 per cent of the principal amount of each creditor class.

According to the company, 99.5 per cent of the principal amount of the secured creditor class voted in favour of the plan. However, only 64 per cent of the principal amount of the unsecured creditor class voted in favour of the plan.

Catalyst, which employs 1,700 people in Powell River, Port Alberni and Crofton, has been in creditor protection since January.

Catalyst had asked for court approval to sell its remaining mills if the restructuring plan was not approved by creditors. The company and the 2016 noteholders put forward a sales and investor solicitation process, which includes a “stalking horse bid.” This means the 2016 noteholders are prepared to bid to become the new owners of the company.

"Today's creditors' vote makes it clear for stakeholders that our path to emerge from protection will be through a sales process initiated by a stalking horse bid from secured noteholders," said Kevin Clarke, Catalyst president and CEO in a statement. "Our objective remains unchanged and that's to put our company on better financial footing to enable us to compete vigorously and to adapt as necessary to the continuing changes in the markets for our products. Stakeholders can be assured that as milestones in the sales process are met, issues resolved and decisions reached, we will continue to provide timely updates on developments and progress."

The company's debtor-in-possession financing continues to be available to the company and, combined with the company's operating revenue, is expected to continue to provide sufficient liquidity to meet ongoing obligations to employees and suppliers and ensure that normal operations continue during the sale process.

City of Powell River Mayor Dave Formosa announced the result of the vote at the end of a Powell River Chamber of Commerce meeting today. “We were quite optimistic that it wouldn’t fail,” he said. “It was really all about the unsecured creditors.”

The larger creditors accepted the deal, Formosa said, but the smaller creditors didn’t. “We have to wait to see what happens next, but basically my read is, unless somehow they can [reorganize] again and try again, it’s liquidation time, which isn’t good for us.”

The Powell River mill could have a future, Formosa said, because it has shifted out of the newsprint business and into producing more specialty papers. “It has been making money, but the issue is, do you find somebody to buy it.”

Former management employees of the company will lose up to half of their pensions, Formosa also said. “There are a lot of people in our community that are in that place,” he said.

The result of the vote is another step in the process, said Mike Verdiel, president of Local 76 of the Communications, Energy and Paperworkers’ Union of Canada (CEP), adding he believes Powell River will be successful in the long run. “To lose it by two per cent when you need two-thirds is harsh,” he said. “Even though it didn’t pass by a small margin and we’re going into the sale process, I believe Powell River as an entity will survive. I think we have some good assets and we definitely have good people.”

The union has supported the stalking horse bid, Verdiel said, and they have agreed to honour the collective agreement. “If there are some other owners, we can not say for sure what their position would be,” he said. “I know it’s hard on everybody, but we just need to try to work through it.”

Eldon Haggarty, president of Local 1 of the CEP, attended the meetings in Vancouver, along with Verdiel. "This is not the end of the world," he said. "Nobody should be panicking. This is a process. It's going to take us longer to come out now, but I'm very confident that we will, as Catalyst, survive this."

Union representatives had a meeting with Catalyst representatives after the vote today, Haggarty said, and the company is well prepared and ready to go forward. "They have financing available and will be able to carry on. We don't need to worry about our pay cheques, people don't need to worry about not being paid, companies don't need to be worried about not being paid, it is running as usual as we work through this longer process."

The fact the restructuring plan failed was not necessarily a bad thing, Haggarty said. "We've been questioning all through this process whether the plan of arrangement was best for our company or whether a sales process could be alternately the better one," he said.

The 2016 bondholders have put an offer of $275 million on the table for the three BC mills, Haggarty said. The sales process will start on Friday, he added, and run for 73 days. "At this point in time, if the 2016s buy us, we won't see any real differences here in the town," he said. "We have an agreement that we will honour with the 2016s."

Should another party step in and outbid the 2016s and if the 2016s decide not to go higher with their bid, it may or may not be a good thing, Haggarty said. "Our agreement would not be flowing through with them. So we're uncertain there. But I just want to make it clear this is not the end of the world. One of the doors has closed, but the other one, plan B--which may be equal to plan A, we don't know-is still open and that's the one we're actively pursuing now."

If the 2016s get the company, the collective agreements will be accepted and all three BC mills will continue to run, Haggarty said. Pensions for union retirees are protected as well, he added.

There is no reason to panic, Haggarty, who represents 135 papermakers in Powell River, also said. "If the 2016s do get us, they will own our debt and they will own the equity in the company," he said. "You would never want to threaten one or the other of your positions when you have both. It's a lot easier to work with someone when they hold your debt and hold the equity of the company, because if they do something on one side, they affect the other side. There's a balancing act in there. It might be a better balancing act in there for us, to be able to get loans, to be able to do whatever we need to do, mergers. Mergers is definitely a big word still out there."

Haggarty said he doesn't know who the 2016 bondholders are. "They buy and sell those things, just like we do with shares on the TSX," he said. "We can find out who they are, but it could change tomorrow."