Catalyst Paper Corporation’s announcement about its recapitalization plan leaves some questions unanswered. Since the agreement is also contingent on acceptance of a new collective agreement by union members, uncertainty continues to surround the company’s future.
The agreement Catalyst reached with its bondholders reduces its debt by $315.4 million (US), but gives bondholders 99.5 per cent of the company’s shares. The board of directors will be replaced with a new board if the deal is approved. The new owners would appoint six of the seven members on a new board, while Catalyst would appoint the seventh member.
The company’s debt obligations to bondholders would drop from $640 million (US) to $325 million (US), but still that is a debt load that is significantly higher than its competitors. However, if the restructuring goes ahead, Catalyst’s annual debt payments would be reduced by $25.5 million, according to the company, which would provide it with enhanced flexibility to weather the downturn in paper and newsprint markets.
The identities of the companies that will own Catalyst, along with their motives and plans for the future, are largely unknown. The noteholders have signed confidentiality agreements and the company won’t say who they are. However, industry insiders speculate Third Avenue Management, the company’s largest shareholder, may have an interest in the bonds.
The deal is subject to union members at each division in BC accepting a new labour contract by January 31. While the Powell River and Port Alberni locals have voted in favour of the new agreement, Crofton members rejected it in a first vote. A second vote has been held, but so far union officials have not released the results of that vote.
Additionally, two-thirds of the secured and unsecured bondholders have to approve the restructuring agreement. This also is not a sure thing, according to industry analysts.
The restructuring is slated to be complete by March 31. If the deal fails, Catalyst said it would implement it by seeking creditor protection under the Companies Creditors Arrangement Act.
All in all, many unknowns and much uncertainty surround the restructuring agreement. As Powell River is inexorably tied to Catalyst’s fortunes, the unknowns and uncertainties will affect the local economy. Even if the deal is approved and moves forward, the question of what the new owners will do with the company and each of the divisions remains.
Strong political leadership and a strengthened drive to diversify the economy are both more important than ever in this uncertain climate.
