DBRS Downgrades Catalyst Paper Instrument Ratings to D

DBRS has today downgraded the Senior Secured Debt and Senior Debt ratings of Catalyst Paper Corporation (Catalyst or the Company) to D from CC (low) and C (low), respectively. DBRS has maintained Catalyst’s Issuer Rating at C, which is Under Review with Negative Implications.

The instrument ratings have been downgraded to D after the January 14, 2012, expiry of a 30-day grace period for Catalyst to make an interest payment totalling $21 million on its 11% Senior Secured Notes due 2016. DBRS had indicated that this outcome was possible in its December 16, 2011, press release on the Company.

On January 14, 2012, the Company announced that it had entered into a recapitalization agreement to reduce its debt burden. The Company intends to implement the recapitalization through a plan of arrangement under the Canada Business Corporations Act (CBCA). Specifically, Catalyst announced that (1) holders of its 11% Senior Secured Notes due 2016 holding approximately $208.1 million aggregate principal amount of outstanding Senior Secured Notes (representing more than 53.2% of the total outstanding Senior Secured Notes) and (2) holders of its 7 3/8% Senior Notes due 2014 holding approximately $54.5 million aggregate principal amount of outstanding Senior Notes (representing more than 21.7% of the total outstanding Senior Notes) have signed an agreement to support and vote in favour of the recapitalization plan. The Company advised that it expects further support of the recapitalization from additional holders of the Senior Secured Notes and Senior Notes.

The implementation of the plan of arrangement under the CBCA will be subject to approval by not less than 66 2/3% of the votes cast by holders of each of the Senior Secured Notes and the Senior Notes. The agreement is subject to termination in certain circumstances, including: (1) by the holders of the Senior Secured Notes and Senior Notes in the event that the Company does not pay the overdue interest on the Senior Secured Notes on or before January 31, 2012; (2) by the Company if by January 31, 2012, a new labour agreement with all union locals at the Company’s Canadian mills has not been ratified.

As for Catalyst’s Issuer Rating, DBRS has maintained its C rating Under Review with Negative Implications pending the outcome of the Company’s intended recapitalization agreement or other potential outcomes, which could possibly include filing for creditor protection under Companies’ Creditors Arrangement Act should the Company and bondholders not agree to a recapitalization plan.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are Rating Companies in the Forest Products Industry and DBRS Criteria: Rating Leveraged Finance, which can be found on our website under Methodologies.