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Catalyst Paper said it is seeking court-ordered creditor protection
Tuesday after workers at its Crofton pulp and paper mill rejected a new
labour contract that was key to a voluntary restructuring plan.
Catalyst, the largest pulp and paper company on the Coast, is seeking an
order through the B.C. Supreme Court to commence proceedings under the
Companies' Creditors Arrangement Act. 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, analyst Kevin Mason, of ERA Forest Products Research
said in an interview.
"At the end of the day, in most cases that we see, it is the workers who
take a pretty good haircut," Mason 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
Catalyst has 1,549 employees in B.C. and operates mills at Crofton, Port
Alberni and Powell River. It also operates a recycled newsprint mill at
Five of the six union locals at the Canadian mills had voted to accept
the contract, which contained concessions. The 380 members of the
Crofton local of the Pulp, Paper and Woodworkers of Canada voted it down
by 58 per cent.
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. By seeking creditor protection, Catalyst expects the court will
order all proceedings on the part of creditors to be stayed. The company
had defaulted on a $21 million bond interest payment Dec. 15.
The company's total debt load is $810 million but the value of Catalyst
is "substantially less than $810 million, if half that amount,"
according to an affidavit filed in court by chief financial officer
Catalyst's move brought a swift response from the rival Communications,
Energy and Paperworkers Union, whose members had supported the new contract.
"We are extremely disappointed that after weeks of working toward a
solution, it has come to this," CEP western region vice-president Jim
Britton said in a news release. "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 CEP is calling for a national assistance program for the forest
sector. Catalyst is the latest of a number of papermakers to go into
bankruptcy or creditor protection. At issue for the union is the absence
of sufficient legislated protection for workers once companies seek CCAA.
"Speaking from experience with the CCAA, the future doesn't look good
because we know exactly what's next: Workers' money will be used to pay
off creditors," CEP national president Dave Coles, a former worker at
the Crofton mill, said in a news release.
"This country's bankruptcy act forces workers to the back of the line
when it comes to collecting what is owed."
A new contract with workers at its three coastal British Columbia pulp
and paper mills was one of two conditions the company had to meet by
Jan. 31 in order to proceed with a debt-for-equity restructuring that
would have trimmed $315.4 million off its $810 million debt.
The second condition, approval of the deal by a two-thirds majority of
bondholders also appeared to be failing. Secured bondholders had
accepted the deal but only 55 per cent of unsecured bondholders had
agreed to the arrangement by Jan. 31.
When the papermaker announced its voluntary restructuring plan Jan. 14,
it stated that if it was unable to gain the necessary support, it would
proceed under CCAA.
"Our debt restructuring objective remains clear and unchanged though our
path forward was altered by recent setbacks," Catalyst president Kevin
Clarke said in a news release. "Without the new labour agreement, and
without two-thirds support of 2014 noteholders, the economics of the
previously announced consensual restructuring transaction were undermined.
"The board, management and our advisers believe this approach 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."