UPDATED: Catalyst Paper Corporation has received approval to draw on financing available during a restructuring process through the Companies’ Creditors Arrangement Act (CCAA).
The Supreme Court of BC approved debtor-in-possession (DIP) financing on Friday, February 3. JP Morgan is providing up to about $175 million to Catalyst during the CCAA proceeding, which, combined with the company’s operating revenue, is expected to provide sufficient liquidity to meet ongoing obligations to employees and suppliers.
The company obtained an initial order from the court under the CCAA on January 31. The CCAA is a federal act that allows financially troubled corporations the opportunity to restructure their financial affairs through a formal plan of arrangement. The CCAA presents an opportunity for the company to avoid bankruptcy and allows creditors to receive some form of payment for amounts owning to them by the company.
Catalyst had initially proposed a voluntary restructuring plan, which would have reduced its debt by $315 million and reduced annual cash interest payments by $26 million. However, it needed two-thirds support of bondholders, which it did not receive. As well, it needed all the union locals in its Canadian operations to accept a new labour agreement. Five of the six union locals voted to accept the contract, which contained concessions, but the 380 members of the Crofton local of the Pulp, Paper and Woodworkers of Canada (PPWC) voted it down by 58 per cent.
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, according to Kevin Mason, of ERA Forest Products Research. “At the end of the day, in most cases that we see, it is the workers who take a pretty good haircut,” he 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 said that it intends to continue operations as usual and that it will meet obligations to its employees and suppliers during the CCAA process.
City of Powell River Mayor Dave Formosa said in an interview with CBC Radio last week that if the mill ceases operations, the impact to Powell River would be devastating. The community would lose 400 direct jobs and about 600 indirect jobs. “It would be a shift again, more taxation to the local business community and the residents,” he said. “They’ve already shouldered a lot over the last six years as we’ve played a leadership role in helping Catalyst get their feet under them, given the tough market.”
Formosa also said if the PPWC came onside, “We could see our community saved. We’re an isolated community, we don’t have a highway going through it. We’re looking at 20-plus per cent unemployment rate, we’re looking at probably an implosion of services and an exodus of people.”
He would say to union members to accept the labour deal and help keep the company alive, Formosa said. “It affects more than just the workers. It affects the pensioners, it affects the bridge people that took early retirement; they’ll lose their early retirement. It affects all the spin-offs. It affects the other jobs, the teachers, the doctors, the CUPE [Canadian Union of Public Employees] workers in our community. It affects everybody.”
-with files from Glacier News Service
Catalyst to file for creditor protection
One union local votes down labour agreement
Catalyst Paper Company announced late Tuesday, January 31, that it had obtained an initial order from the Supreme Court of BC under the Companies’ Creditors Arrangement Act (CCAA). In a company statement, Catalyst said it has not yet determined the terms and conditions of the restructuring plan.
Catalyst also announced that JP Morgan has agreed to provide debtor-in-possession (DIP) financing to the company. Up to approximately $175 million will be available to Catalyst during the CCAA proceedings.
“The company’s operating revenue combined with the proposed DIP financing are expected to provide sufficient liquidity to meet ongoing obligations to employees and suppliers and ensure that normal operations continue during the restructuring process,” Catalyst’s release stated. “Catalyst management will remain responsible for the day-to-day operations of the company.”
Toronto Stock Exchange suspended Catalyst shares from trading on Wednesday, February 1, as it started a review on the company’s continued listing.
Catalyst Paper Corporation announced Tuesday, January 31 that it has decided to file for court protection from creditors to facilitate an orderly restructuring of the company. The board of directors has approved a filing for an initial order from the Supreme Court of British Columbia to begin proceedings under the Companies’ Creditors Arrangement Act (CCAA).
“The operations of Catalyst and its subsidiaries are intended to continue as usual and obligations to employees and suppliers during the restructuring process are expected to be met in the ordinary course,” a company release stated. “Catalyst management will remain responsible for the day-to-day operations of the company. The company expects that the interim order will provide that while the company and its subsidiaries are under CCAA protection, all proceedings on the part of their creditors will be stayed.”
Members of the Pulp, Paper and Woodworkers Union of Canada at Catalyst’s Crofton mill rejected a new labour agreement that had to be ratified as part of the company’s financial restructuring plan. As well, the company secured support from only 54.96 per cent of its 2014 noteholders; it needed two-thirds support.
There are approximately 380 members of the union’s local at Crofton. Over 700 members of the Communications, Energy and Paperworkers Union (CEP) at the company’s Crofton, Port Alberni and Powell River divisions accepted the new agreement, which contained cost-cutting measures.
Unanimous ratification of the agreement by January 31 was a condition of the refinancing proposal, which would reduce the company’s debt by $315 million and reduce annual cash interest payments by $26 million. Bondholders would take control of the company if the agreement had gone ahead.
“Our debt restructuring objective remains clear and unchanged though our path forward was altered by recent setbacks,” said Kevin Clarke, president and CEO in Tuesday’s statement. “Without the new labour agreement and without two-thirds support of 2014 noteholders, the economics of the previously announced consensual restructuring transaction was undermined.”
Clarke also said in the statement that the board, management and the company’s advisors believe seeking court protection “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.”
Jim Britton, CEP’s western region vice-president, said in a statement that Catalyst’s announcement shows the paper industry is at a crossroads. “If the paper industry in Western Canada is going to survive, governments must act now to develop an industrial strategy and not merely observe from the sidelines,” Britton said. “We are extremely disappointed that after weeks of working toward a solution, it has come to this. 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 forest industry in BC has lost 30,000 good paying jobs in the last decade and we can ill afford to lose any more.”
Catalyst’s announcement puts it on a list with other well-known companies, including Canwest Global, Nortel, Air Canada, AbitibiBowater and Eaton’s.
