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There's another restructuring playing out in the troubled forest products industry, as Catalyst Paper announced a debt-for-equity and rights offering swap that will dilute existing owners, but deal with a busted balance sheet.

Catalyst is attempting to swap $354-million (U.S.) of debt that matures in 2011 for new bonds that don't come due until 2016, and a slug of stock. In addition, the company plans a $100-million (Canadian) rights offering to existing shareholders. Genuity Capital Markets is advising on the restructuring.

While dilutive for existing owners, this plan holds out more promise for shareholders than the restructuring playing out at a rival forest products company, Fraser Papers. That company, which is in the Brookfield Asset Management orbit, was forced to file for creditor protection earlier this year.

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These restructurings are going to continue to play out as debt issued in the easy credit markets that ended in 2007 come due, and must be refinanced. Analysts are giving a cautious thumbs-up to Catalyst's plan.

"If successful, the exchange offer will significantly improve Catalyst's financial flexibility," said a report on the restructuring Thursday from CIBC World Markets analyst Jonathan Lethbridge. " In particular, management will have dealt with its most pressing debt maturity by pushing it out from 2011 to 2016, while interest expense is expected to fall by just under $6-million."

"We estimate that after giving effect to both transactions [the debt-swap and the rights offering] Catalyst's shares outstanding will increase by 117 per cent and the transaction will be neutral to valuation," said Mr. Lethbridge.

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About the Author
Business Columnist

Andrew Willis is a business columnist for the Report on Business at The Globe and Mail, based in Toronto.He has been in business communications and journalism for three decades. More

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