Catalyst Paper's bid procedures approved; sale of properties delayed

By Jim Witters

Wilmington, Del., April 17 - Catalyst Paper Corp.'s sale procedures received U.S. court approval Tuesday over the objection of a group 2014 noteholders who said the procedures favor the 2016 noteholders, who will be the stalking horse bidder.

The ruling by judge Peter J. Walsh in the U.S. Bankruptcy Court for the District of Delaware enforces the previous approval by the Supreme Court of British Columbia of the sale and investor solicitation process.

The company also delayed the planned $3.6 million private sale of property in Snohomish, Wash., and Everett, Wash., to U.S. Golden Eagle Farms LP. The seller is Catalyst's wholly owned subsidiary and Chapter 15 debtor Pacifica Poplars Inc.

Debtors attorney Van C. Durrer, II said the sale is uncontested, but the company "is still working through some issues with the buyers" and would inform the court when ready to proceed.

Sale procedures

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.

A Canadian monitor has valued the company's unencumbered assets at C$52 million to C$69 million.

A creditor voting meeting is scheduled for May 2 in Canada. The court date to sanction and approve the plan of arrangement has been rescheduled to May 7 from April 25.

2014 noteholder objections

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

The objecting noteholders collectively hold about $130 million principal amount of 7 3/8% 2014 senior notes.

Daniel A. Fliman, representing the 2014 noteholders, said the 2016 noteholders agreed to a previous restructuring support agreement that contained the same treatment of the noteholders as the current agreement, but provided for no expense reimbursement.

The debtors agreed unnecessarily to reimburse up to $1 million, he said.

Because of the strong position granted to the 2016 noteholders in the restructuring support agreement, there were "no truly arms-length negotiations" regarding the reimbursement provision, Fliman said.

The stalking horse agreement and the restructuring support agreement give the 2016 noteholders so much control over the process that other potential bidders will be hesitant to enter the fray, Fliman said.

Durrer said Catalyst intends to fully comply with the provisions of the U.S. bankruptcy code in the marketing and sale of the U.S. assets. All other aspects of the case are under the purview of the Canadian court.

"We are seeking a unified procedure, not one procedure here and a different procedure in Canada," Durrer said.

Meredith A. Lahaie, representing the 2016 noteholders, said the expense reimbursement is a "red herring." The debtors already are obligated to pay the 2016 noteholders' fees under a previous ruling by the Canadian court, she said.

In his ruling, Walsh said that the order approving the sale procedures conforms with the standards for a U.S. Chapter 11 sale. And the reimbursement amount falls well within the 3% standard for stalking horse bids in his court.

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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