Catalyst Paper to buy mills in Maine and Wisconsin
Catalyst intends to finance the acquisition through a combination of advances under its revolving asset-based credit facility, the maximum amount of which is to be increased in connection with the Transaction.
To provide additional working capital following the consummation of the Transaction, Catalyst also intends to effect a $25 million offering of additional PIK Toggle Senior Secured Notes, which would form part of the same series as Catalyst’s outstanding PIK Toggle Senior Secured Notes.
Completion of the Transaction is subject to customary closing conditions, including the completion of the previously announced acquisition by Verso Paper Corp. of NewPage Holdings, the execution of a transition service agreement, materials and service supply agreements, and certain other ancillary agreements relating to the Transaction, and certain regulatory approvals.
There is no financing condition to Catalyst’s obligation to consummate the Transaction. The Agreement may be terminated by the Sellers and Catalyst in certain circumstances, including upon or at any time following the final uncontested termination of the Verso Transaction.
If the Transaction is completed, the addition of the Paper Mills is expected to increase Catalyst’s production capacity by approximately 65 per cent or 995 thousand tonnes per year. The Biron Wisconsin mill has 355 thousand tonnes capacity for lightweight coated and ultra-lightweight coated paper.
The Rumford Maine mill has 510 thousand tonnes paper capacity for coated specialty, coated freesheet and coated groundwood paper, and 130 thousand tonnes Kraft market pulp capacity to produce both hardwood and softwood pulp. Efficiencies are expected to be gained as overhead costs will be distributed over a larger production base. Access to new markets and business opportunities is anticipated.
Based on unaudited historical financial summaries prepared by the Sellers, the Paper Mills achieved total sales of $782.2 million for the twelve months ended September 30, 2014 and $787.1 million for the twelve months ended December 31, 2013. Total mill contribution was $29.5 million and normalized mill contribution was $45.6 million for the twelve months ended September 30, 2014, compared to $72.4 million for mill contribution and normalized mill contribution for the twelve months ended December 31, 2013.
Mill contribution is a non-U.S. GAAP measure of mill operating performance defined as total sales minus the cash cost of goods sold. Mill contribution was normalized for the twelve months ended September 30, 2014 for the adverse impact of extreme weather conditions and market curtailment.
These figures do not include sales, general and administrative expenses which are estimated to be approximately $10 million per year. Capital spending for the two mills is expected to be approximately $7 million per facility per year.
Under the terms of the Agreement, Catalyst will acquire the Paper Mills for consideration of $74 million, subject to certain adjustments, and assumption of certain ongoing obligations related to the Paper Mills. Pre-closing environmental and pension liabilities will be retained by the Sellers.
To assist in financing the acquisition and provide additional working capital, Catalyst has received a Letter of Commitment from Canadian Imperial Bank of Commerce and Wells Fargo Capital Finance Corporation Canada to increase the Company’s ABL Credit Facility by $50 million, from $175 million to $225 million, the maximum amount of credit available under the ABL Credit Facility.
Catalyst has received the requisite consent from holders of PIK Toggle Notes to give effect to the increase in the ABL Credit Facility.
The availability of the proposed increase in the ABL Credit Facility is subject to the satisfaction of certain customary conditions, including the entering into by the relevant parties of required amendments to the credit agreement governing the ABL Credit Facility.
To provide additional working capital following the completion of the Transaction, Catalyst also intends to issue $25 million of Additional PIK Toggle Notes. ■