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Restructuring and Insolvency

Insolvency Watch: Catalyst Paper Seeks US Court Protection But Will Continue Normal Operations

Published: 01/23/2012

By Joseph J. Bellissimo, Larry Ellis, Deborah S. Grieve, Bruce Leonard, Eleonore Morris, David Ward

Catalyst Paper Corporation (TSX:CTL) has taken the unusual step of publicly announcing that, although it is not in bankruptcy, the company is seeking court protection under Chapter 15 of the US Bankruptcy Code.

The Richmond, BC-based company reported earlier that it had received an initial court order under the Canada Business Corporations Act (CBCA) to begin a consensual restructuring process with its noteholders. It made the new announcement to correct allegations of bankruptcy that appeared in some media reports following its initial statement.

Catalyst has entered into a restructuring agreement that calls for a debt-for-equity swap that will result in its bondholders taking control of the company. It said the agreement would cut the company's debt by C$315.4 million and substantially reduce its cash interest expenses. In its filing in the US Bankruptcy Court in Wilmington, Delaware, Catalyst listed both assets and liabilities of more than $1 billion.

The company wants to obtain recognition of the CBCA proceedings by a US court in order to secure creditor protection in the United States.

In Canada, bankruptcy liquidations are normally governed by the Bankruptcy and Insolvency Act (BIA), while large corporate restructurings of insolvent companies requiring stays of proceedings are usually covered by the Companies' Creditors Arrangement Act (CCAA).

The protections provided by the Canada Business Corporations Act (CBCA) are often sought in situations where complex or fundamental changes must be made to the shareholdings and debt structures of solvent companies to carry out amalgamations, liquidations and dissolutions.

Catalyst Paper says that during the restructuring process it will continue to operate normally and meet its continuing obligations to trade creditors, customers, employees and retirees.

Catalyst Paper operates four mills located in British Columbia and Arizona and manufactures a wide range of specialty mechanical printing papers, newsprint and pulp for customers in North and South America, the Pacific Rim and Europe.