S&P lowers its long-term corporate credit rating on Catalyst Paper to SD (select default) from CCC following company's announced decision to defer interest payments on its December 2016 notes

Kendall Sinclair

TORONTO , December 16, 2011 (press release) – We are lowering our long-term corporate credit rating on Catalyst Paper Corp. to 'SD' (selective default) from 'CCC'.
We are also lowering our debt rating on the company's US$110 million and US$280 million senior secured notes (11% due December 2016) to 'D' (default) from 'CCC', and revising our recovery rating on the notes to '4' from '3'.
In addition, we are lowering our issue-level rating on Catalyst's unsecured notes due in 2014 to 'C' from 'CC'. The recovery rating on the notes is unchanged at '6'. We are keeping the unsecured notes on CreditWatch, where they were placed with negative implications Aug. 8, 2011, because as we are uncertain of the outcome of the ongoing capital structure review.
These rating actions reflect the company's announcement Dec. 15, 2011, that it will defer interest payment on its December 2016 notes. Although Catalyst has a 30-day grace period to make a payment, Standard & Poor's criteria only allow for a grace period of five business days. We are uncertain if the company will make the payment within the five days.
Catalyst is a diverse manufacturer of specialty mechanical printing papers, newsprint, and pulp, with a combined annual production capacity of 2 million metric tons. It has three production facilities in B.C. and one in Arizona.
Standard & Poor's Ratings Services today said it lowered its long-term corporate credit rating on Catalyst Paper Corp. to 'SD' (selective default) from 'CCC'.

Standard & Poor's also lowered its debt rating on the company's US$110 million and US$280 million senior secured notes (11% due December 2016) to 'D' (default) from 'CCC, and revised its recovery rating on the notes to '4' from '3'. A recovery rating of '4' represents average (30%-50%) recovery in the event of default. In addition, Standard & Poor's lowered its issue-level rating on the company's unsecured notes due in 2014 to 'C' from 'CC'. The recovery rating on the notes is unchanged at '6', indicating our expectation of negligible (0%-10%) recovery in a default scenario.

We are keeping the unsecured notes issue on CreditWatch, where it was placed with negative implications Aug. 8, 2011, because we are uncertain of the outcome of the ongoing capital structure review.

"These rating actions reflect Catalyst's Dec. 15 announcement that it will defer interest payment on its December 2016 notes," said Standard & Poor's credit analyst Jatinder Mall. "Although the company has a 30-day grace period to make a payment, Standard & Poor's criteria only allow for a grace period of five business days, and we are uncertain if the company will make the payment within the five days," Mr. Mall added.

The company began the review of its capital structure in June 2011 and has been negotiating with existing 2014 and 2016 bondholders to deal with the existing debt structure. Catalyst has decided to defer an approximately US$21 million interest payment on it 2016 secured notes. We are uncertain as to the company's current liquidity position and whether it has the capacity to make this interest payment.

Catalyst is a diverse manufacturer of specialty mechanical printing papers, newsprint, and pulp, with a combined annual production capacity of 2 million metric tons. It has three production facilities in B.C. and one in Arizona.

Standard & Poor's will likely resolve the CreditWatch on the notes once it has a better understanding of what effect Catalyst's review of its capital structure will have on the company's unsecured notes due 2014.

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