Catalyst Paper's 2014 noteholders say sale procedures favor 2016 notes

By Jim Witters

Wilmington, Del., April 10 - A group of Catalyst Paper Corp. noteholders objects to the company's proposed sale procedures, claiming they favor the 2016 noteholders by constraining bidding, according to documents filed Tuesday with the U.S. Bankruptcy Court for the District of Delaware.

The objection is to the debtors' motion seeking U.S. court recognition of a Supreme Court of British Columbia order approving a sale and investor solicitation process.

The objecting noteholders collectively hold about $130 million principal amount of 7.375% 2014 senior notes, according to court documents.

"The sale and investment solicitation procedures and the so-called agreement are just the latest examples of the debtors' willingness to acquiesce to the 2016 noteholders' attempts to usurp control of the debtors and their destinies," the objection states.

"The agreement, despite being immensely beneficial to the 2016 noteholders, relieves them of any obligations whatsoever. Indeed, the agreement gives the bidder - a shell entity with no known funds or legal authority that is likely judgment-proof - a free option to select which assets it may buy, if any, at a price it is free to determine and allocate as it wishes with no consequences for simply walking away," the objection states.

The sale agreement and sale procedures also severely restrict the debtors' ability to solicit other bidders, the objection states.

As previously reported, Catalyst has entered into a $275 million stalking horse agreement with CP Acquisition, LLC, an entity established by the holders of a majority of the total principal amount of its 11% senior secured notes due Dec. 15, 2016.

Under that agreement, CP Acquisition would acquire substantially all of the assets on behalf of the noteholders.

The company said the sale will only be completed if its plan of arrangement fails.

Catalyst has agreed to reimburse up to $1 million of the noteholder entity's expenses incurred in connection with the development of the stalking horse agreement.

The objecting noteholders claim the debtors have "handed over" their fiduciary responsibilities to the 2016 noteholders.

"The sales procedures also give the 2016 noteholders tight control over the sales process that is highly inappropriate in the hands of a bidding party. As such, if approved, the sale and investment solicitation procedures will ensure that the 2016 noteholders can acquire the debtors' assets for cheap, without any serious competitive bidding, to the detriment of all general unsecured creditors," the objection states.

The 2014 noteholders say that bankruptcy law prohibits bidding procedures that "constrain value instead of maximizing it."

The law also precludes granting bid protections, including expense reimbursement, to the 2016 noteholders in their role as bidders, the objection states.

A hearing on the bid procedures is scheduled for 9:30 a.m. ET on April 17.

Catalyst, a Vancouver, B.C.-based paper and pulp company, filed for bankruptcy on Jan. 17 to gain recognition of its Canadian proceedings. Its Chapter 15 case number is 12-10221.

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