Try again, Catalyst urged
Costly rejection of Catalyst Paper plan should be overturned by courts, former employee says
Catalyst Paper pensioners, who stand to lose $ 115 million after a vote narrowly failed, say the closeness of the vote ‘ screams out’ for another attempt to restructure the firm.
Catalyst Paper pensioners, who stand to lose $ 115 million after a vote to restructure the company narrowly failed Wednesday, say the closeness of the vote “screams out” for another try to restructure the papermaker.
The Richmond- based company, with mills in Crofton, Port Alberni and Powell River, is now to be sold through a court- approved process.
The failure of the restructuring plan puts pensioners, employees, communities and smaller creditors — all of whom have made significant concessions to keep Catalyst alive — at significant risk and should not be permitted to proceed by the courts, pensioner Gary Mccaig said Thursday.
But a financial analyst familiar with the restructuring drama, which has been unfolding in B. C. Supreme Court for four months, said that under Canadian law, there is little likelihood of that happening.
“The vote failed. Now Catalyst is going to be sold,” said Kevin Mason of ERA Forest Products Research. A 73- day period to complete the sale begins today.
Unsecured creditors voted 64 per cent in favour of the restructuring plan, missing the 66.6- per- cent requirement by only 2.6 per cent, forcing the company to begin a courtapproved sales process. Three investment funds holding a significant number of the unsecured bonds torpedoed the plan. They now will likely receive nothing.
Mason said the most likely reason the vote failed is that the unsecured noteholders — many of them hedge funds specializing in distressed companies — were unfamiliar with Canadian court restructuring procedures. In the U. S., he said, a second vote is common.
“I think there may have been an expectation you can go back and squeeze a little bit more, have another kick at the can, but, sorry, it’s done. You voted no, and now it goes to a sales process.”
Mccaig said Catalyst is now entering a “period of uncertainty” that he expects to be characterized by further litigation, including a suit by Mccaig’s pensioners group.
The pensioners did not have a chance to vote because, until the restructuring plan failed, they were not considered to be affected creditors. The failure of the vote will lead to the company pension plan being wound up. When that happens, it is expected to have a $ 115- million deficit, which will affect the pensioners. The 1,500 people in the plan could have pensions reduced to 65 per cent of current levels, Mccaig said.
“The restructuring plan failed by a hair. It cries out for another attempt,” he said. “The company has said so far they will not make another attempt. They say they cannot.
“We are told it’s not going to happen because of a two- per- cent gap” in the vote.
Jim Britton, western region vicepresident for the Communications, Energy and Paperworkers Union, said rejection of the plan means continued uncertainty for mill workers and the coastal communities in which Catalyst operates.
“We have been working with Catalyst hoping we could get through this,” Britton said. “We are disappointed we couldn’t come out of this with a plan and some assurances to keep those mills running.”
Mason said the outcome of the vote is “puzzling” since the unsecured creditors now stand to gain nothing if the sales process goes through. However, he said, even under new owners he expects Catalyst will remain operating much as it is now. “For most of the operational stuff, it’s going to be business as usual,” he said.
The secured creditors, also investment funds specializing in distressed debt, stand to become owners of the company. B. C. Supreme Court has already approved a “stalking horse bid” by the secured creditors for $ 275 million. The bid is intended to initiate an auction process, but Mason said he doesn’t see any other potential buyers for a paper company on the horizon.
“It’s pretty much a lock that they will end up owning the company,” he said.
Catalyst’s secured and unsecured noteholders voted on a plan that would reduce its bondholder debt by $ 390 million, from $ 640 million to $ 250 million. Only one of the 133 secured noteholders, representing 0.4 per cent of the total value of the bonds, voted against the plan. The remaining 99.6 per cent voted in favour.
Of the 425 unsecured creditors, 415, representing 95 per cent of the number of creditors, supported the plan. Twenty- three, representing five per cent, rejected it.
However, those 23 creditors represented 36 per cent of the value of the debt, and the vote required a twothirds majority of creditors according to value.
“This constitutes plan failure,” court- appointed monitor PWC said in a report.