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Struggling Catalyst Paper Corp. has received the go-ahead from a court in British Columbia to begin a planned restructuring, while at the same time filing for protection from creditors in the United States.
The Richmond, B.C.,-based company said Wednesday a B.C. court had issued an initial order under the Canada Business Corporations Act to begin the restructuring process.
The plan would see bondholders take control of the firm. It would also reduce its overall debt by $315.4-million and cut annual cash interest payments by $25.5-million.
The filing Wednesday in a Delaware court was made under provisions of Chapter 15, a form of filing that foreign companies operating in the U.S. employ when seeking protection from creditors.
But Catalyst emphasized that the Canadian court order is not a bankruptcy proceeding.
"While this whole process of restructuring continues we will be running the business as usual and satisfying all of our obligations to our suppliers, customers, employees and retirees just as we ordinarily would," said Catalyst spokeswoman Lyn Brown.
Shares in Catalyst fell from 2 cents each to a penny Wednesday on the Toronto Stock Exchange.
The B.C.-based producer of specialty papers, newsprint and pulp operates four mills in British Columbia and Arizona.
Catalyst said the debt restructuring will give the company more financial flexibility to deal with a slumping pulp, paper and newsprint market.
Meanwhile, chief financial officer Brian Baarda said the relief requested in the Chapter 15 filing in the United States was "well-justified [and]necessary to a successful reorganization . . . and in the best interest of the debtors and creditors and should be granted in full."
As part of its U.S. filing, Catalyst said its 314 U.S. employees are potential creditors but added that it doesn't expect them to be adversely affected by the protection proceedings.
"Debtors intend for the business of the United States affiliates of CPC to continue as usual with as little disruption as possible," the company said in its filing.
However, Mr. Baarda petitioned the court not to send employees copies of the proceedings as is usually the case with creditors in a bankruptcy protection filing.
"I believe that sending copies of various pleadings and orders that do not directly impact employees may only serve to confuse and distract them at a critical juncture when the company is seeking to implement the restructuring," he said.
Catalyst earlier deferred $21-million of interest payments due on its senior secured notes in December.
The company's recapitalization plan would create a new board of directors and give voting control of the paper company to its bondholders.
It is also subject to new contracts with the unions at the company's Canadian mills being ratified by the end of January.
Moody's Investors Service downgraded Catalyst on Tuesday after the company signed the deal to Ca from Caa3 and its senior secured notes to Caa2 from Caa3. Senior unsecured notes were downgraded to C from Ca.
Under the Moody's rating system, anything less than triple-B is considered too risky for conservative fund managers such as pension plans. A rating of C or below suggests there's a high risk that the issuer could fail to meet its obligations.
Moody's said the downgrade is because of the likelihood of a loss for bondholders or a filing for court protection from creditors.