Filing Details

Catalyst Paper Corporation

Common Shares, no par value

14889B102

Cyrus Capital Partners, L.P.

399 Park Avenue, 39th Floor

New York, New York 10022

(212) 380-5800

Eleazer Klein, Esq.

Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York 10022

(212) 756-2000

May 20, 2016

NAME OF REPORTING PERSONS

Cyrus Capital Partners, L.P.

(a) ¨

(b) x

SOURCE OF FUNDS

AF

CITIZENSHIP OR PLACE OF ORGANIZATION

Delaware

SOLE VOTING POWER

0

SHARED VOTING POWER

6,452,141

SOLE DISPOSITIVE POWER

0

SHARED DISPOSITIVE POWER

6,452,141

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON

6,452,141

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) (see Item 5)

44.41%

TYPE OF REPORTING PERSON

PN/IA

NAME OF REPORTING PERSONS

Cyrus Capital Partners GP, L.L.C.

(a) ¨

(b) x

SOURCE OF FUNDS

AF

CITIZENSHIP OR PLACE OF ORGANIZATION

DELAWARE

SOLE VOTING POWER

0

SHARED VOTING POWER

6,452,141

SOLE DISPOSITIVE POWER

0

SHARED DISPOSITIVE POWER

6,452,141

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON

6,452,141

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) (see Item 5)

44.41%

TYPE OF REPORTING PERSON

OO

NAME OF REPORTING PERSONS

Stephen C. Freidheim

(a) ¨

(b) x

SOURCE OF FUNDS

AF

CITIZENSHIP OR PLACE OF ORGANIZATION

United States

SOLE VOTING POWER

0

SHARED VOTING POWER

6,452,141

SOLE DISPOSITIVE POWER

0

SHARED DISPOSITIVE POWER

6,452,141

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON

6,452,141

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) (see Item 5)

44.41%

TYPE OF REPORTING PERSON

IN

See rows (11) and (13) of the cover pages to this Schedule 13D for the aggregate number of Shares and the percentage of the Shares beneficially owned by the Reporting Persons. The percentage reported in this Schedule 13D is calculated based upon the 14,527,571 Shares outstanding as of December 31, 2015 as reported in the Issuer's Form 20-F filed with the Securities and Exchange Commission on April 4, 2016.

As a result of the Acquisition Letter, the Reporting Persons, certain funds and entities managed or controlled by Oaktree Capital Management, L.P. and Mudrick Capital Management, L.P., as investment manager to certain of its clients, and funds managed by Stonehill Capital Management LLC (collectively, the “Parties”) may be deemed to be members of a “group” (within the meaning of Section 13(d)(3) of the Exchange Act) with each other. The Reporting Persons hereby expressly disclaim membership in a "group" with other Parties, and this Schedule 13D shall not be construed as an admission that any Reporting Person, for any purpose, is a member of a group with any of the other Parties or any other person or beneficially owns any Shares beneficially owned by any of the other Parties or any other person. 

Kejriwal Group International

Oaktree Opportunities Fund IX, L.P.

Oaktree Opportunities Fund IX (Parallel), L.P.

Oaktree Opportunities Fund IX (Parallel 2), L.P.

By:        Oaktree Opportunities Fund IX GP, L.P.

Its:        General Partner

By:        Oaktree Opportunities Fund IX GP Ltd.

Its:        General Partner

By:        Oaktree Capital Management, L.P.

Its:        Director

By:        /s/ Emily Stephens                    By:   /s/ Brook Hinchman

Name:   Emily Stephens                           Name:   Brook Hinchman

Title:     Managing Director                      Title:       Senior Vice President

Oaktree Value Opportunities Fund, L.P.

By:        Oaktree Value Opportunities Fund GP, L.P.

Its:        General Partner

By:        Oaktree Value Opportunities Fund GP Ltd.

Its:        General Partner

By:        Oaktree Capital Management, L.P.

Its:        Director

By:        /s/ Emily Stephens                    By:     /s/ Brook Hinchman

Name:   Emily Stephens                          Name:   Brook Hinchman

Title:      Managing Director                     Title:      Senior Vice President 

KGI

Wholly-owned direct or indirect subsidiary of KGI (“HoldCo”)

CPC

Holders of not less than: (a) 85% of the outstanding Senior Secured Notes (as defined below) of CPC, and (b) 79% of the outstanding common shares of CPC (collectively, including Stakeholders, the “Principal Stakeholders”)

Parties to enter into one or more definitive agreements containing terms, conditions and indemnities customary for transactions of this nature (the “Definitive Documentation”). Definitive Documentation will include lock-up and support agreements (each a “LSA”) between KGI, on the one hand, and each of the Principal Stakeholders, on the other, to vote their debt and equity instruments in favour of the Transaction.

Transaction facilitated through plan of arrangement under Section 192 of the Canada Business Corporations Act, reflecting an out-of-court consensual acquisition of equity and exchange of certain debt.

The outside date for the completion of the due diligence review by KGI of CPC shall be 60 days following the date on which LSAs have been executed by KGI and the Principal Stakeholders (the “Diligence End Date”).

KGI anticipates entering into the Definitive Documentation not executed prior to the Diligence End Date as soon as possible following the Diligence End Date, and subsequently completing the Transaction as soon reasonably practicable.

(a) Revolving Asset Based Loan Facility of up to C$250.0 million due July 2017 (the “ABL Credit Facility”)

ABL Credit Facility to: (i) remain in place with maturity extended to five years from the date of the agreement and to be upsized to C$300.0 million, subject to the borrowing base, or (ii) refinanced on terms and conditions acceptable to KGI. Secured by a first lien on working capital assets.

(b) Senior Secured Term Loan due July 2017 (the “Senior Secured Term Loan”)

The Senior Secured Term Loan to: (i) remain in place with maturity extended to five years from the date of the closing, or (ii) refinanced on terms and conditions acceptable to KGI.

(c) 11.00% PIK Toggle Senior Secured Notes due 2017 (the “Senior Secured Notes”)

The Senior Secured Notes to be exchanged at par plus accrued interest into the “New Term Loan”, subject to the terms and conditions set out herein.

(d) Trade & Other Obligations

Trade and other obligations of CPC will remain unaffected by the Transaction, subject to the terms and conditions set out herein.

New Term Loan shall contain the terms, conditions and indemnities customary for agreements of its nature, including:

(a) Facility: US$260.5 million term loan plus the amount of accrued interest outstanding on the Senior Secured Notes at the time of the closing.

(b) Term: 5 years post-closing.

(c) Currency: US dollars.

(d) Rate: 6% cash pay plus 6% PIK year one, paid quarterly; thereafter, at the election of the borrower, either 11% cash pay, or 6% cash pay plus 6% PIK, paid quarterly.

(e) Amortization: No amortization obligation in year one; thereafter, annual cash flow sweep pursuant to which 75% of excess cash will be applied to repay indebtedness at par, subject to the terms and conditions of the ABL Credit Facility.

(f) Security: Charge over the working and non-working capital assets of CPC subject to the ABL Credit Facility and the Senior Secured Term Loan.

(g) Guarantors: All existing guarantors, plus (i) a secured guaranty in the maximum amount of C$35.0 million from HoldCo (such guaranty to be secured by all of the assets of HoldCo and structured in a manner that would permit HoldCo to incur ordinary course project financing and equipment financing obligations in furtherance of the growth of CPC’s business in accordance with KGI’s business plan (the foregoing indebtedness permitted to be incurred by HoldCo, “Permitted Holdco Secured Indebtedness”)) and (ii) a senior unsecured guaranty from HoldCo (it being understood that HoldCo shall be subject to certain covenants (including on HoldCo’s ability to incur other senior pari passu unsecured obligations) to be agreed upon, including, without limitation, (x) prohibiting HoldCo from incurring any secured indebtedness other than the Permitted Holdco Secured Indebtedness and (y) requiring that any affiliate indebtedness be subordinated to the HoldCo guaranty in a manner acceptable to the New Term Loan lenders).

(h) Covenants: (i) Minimum liquidity and (ii) maximum total leverage as set forth in the table below; it being understood that, the definitions of each covenant will take into account foreign exchange adjustments and be subject to the diligence, negotiation and agreement of the parties. Other restrictive covenants customary for a financing of this type, including those summarized below.

(j) Capital expenditures: Maintenance capital expenditures to be determined and no limit on safety capital expenditures.

(k) Asset sales: 100% of cash proceeds of asset sales to be used towards repayment of New Term Loan, subject to: (i) the terms and conditions of the ABL Credit Facility, and (ii) an exception for asset sales with respect to immaterial or obsolete assets, which sales are effected in the ordinary course and in a manner consistent with past practice in exchange for proceeds of less than C$1.0 million (taking into account, and aggregating such proceeds with, the proceeds derived from any related or similar asset sales). The net proceeds of such excepted asset sales to be reinvested in the business pursuant to a customary reinvestment provision as agreed by the parties.

(l) Restricted payments: $0.0 (except to support market interest service obligations in connection with HoldCo project finance and equipment finance indebtedness permitted to be incurred pursuant to Section 6(g) above, so long as (i) all of the proceeds of such indebtedness so incurred are used to fund the purchase or acquisition of assets utilized solely for the benefit of CPC and its operations and (ii) the net effect of the use of such assets is an increase in the EBITDA of CPC on a pro forma basis of an amount equal to at least the amount being upstreamed to HoldCo; provided that to the extent such increase to EBITDA is not realized within two quarters of the payment of the related interest service obligations, KGI shall immediately refund to CPC the amount of interest upstreamed that exceeds the actual increase to EBITDA, if any). For the avoidance of doubt, no dividends, salary or expenses on behalf of KGI, its principals or its affiliates shall be permitted.

(m) Affiliate transactions: Any affiliate transactions must be on an arm’s length terms and will be subject to other customary limitations.

(n) Certain operating covenants: From closing through the date that is one year following closing, (i) CPC shall conduct its operations in a manner consistent with KGI’s business plan disclosed to the Principal Stakeholders as of the date hereof as determined in good faith by CPC’s board of directors in consultation with the Principal Stakeholders and (ii) CPC shall retain at least 50% of the operating advisors and consultants disclosed to the Principal Stakeholders as of the date hereof. Full list of potential advisors together with background materials for each advisor to be provided as of the date hereof.

(o) Pay down: New Term Loan to be structured to allow for pay down of debt at par, in minimum increments of not less than US$1.0 million.

(p) Events of Default: Customary events of default for transactions of this type, including the failure of KGI to satisfy the KGI Funding Commitment (as defined below), subject to a 5-day grace period, following which the New Term Loan lenders shall be entitled to exercise their standard remedies provided for in the credit documentation in connection with all events of default and, solely in the event of a failure of KGI to satisfy the KGI Funding Commitment, KGI’s direct and indirect equity interests in CPC shall be automatically forfeited to the New Term Loan lenders.

(q) Governing law: New York.

(r) No KGI affiliate voting: Yes.

(s) Customary reporting covenants, access to management and inspection rights: Yes.

(t) Private & Transferable: New Term Loan will be: (i) private, (ii) carry prescribed information rights, and (iii) transferable to “Eligible Transferees” (the definition of which term shall be agreed upon by the parties), and provided that transfers to competitors of CPC will be restricted.

(u) Administrative agent: Yes, subject to the consent of KGI, which consent will not be unreasonably withheld.

CPC’s common shares held by shareholders other than the Principal Stakeholders to be acquired for cash consideration of C$6.0 per share, subject to an agreement by the Principal Stakeholders to exchange their holdings of CPC common shares for an interest in a new Junior Last Out Convertible Term Loan on the terms hereinafter set forth (the “Junior Last Out Convertible Term Loan,” and together with the New Term Loan, the “New Loans”) in a US dollar principal amount outstanding equal to C$6.0 of Junior Last Out Convertible Term Loans for each CPC common share (the “Debt Consideration”). The exchange contemplated in connection with the Debt Consideration will be calculated using the noon spot rate of exchange quoted by the Bank of Canada on the second business day prior to the closing date.

The maximum aggregate amount of cash that will be paid at closing in connection with the purchase of CPC’s common shares to the common shareholders of CPC, excluding the Principal Stakeholders, is an amount to be agreed by KGI and the Principal Stakeholders prior to closing.

Prior to closing, the parties will agree on the treatment of CPC’s outstanding equity-based incentive plans, including stock option plans, stock bonus plans, stock purchase plans, change-of-control payments and phantom stock plans, in each case subject to a to be determined cap on any amounts paid in connection therewith.

Junior Last Out Convertible Term Loan shall contain the terms, conditions and indemnities customary for agreements of its nature, including:

(a) Term: 5.5 years post-closing.

(b) Currency: US dollars.

(c) Rate: 10% PIK, paid quarterly; provided, that, upon the repayment of the New Term Loan, interest on the Junior Last Out Convertible Term Loan shall be 10% cash pay, paid quarterly.

(d) Amortization: Make-whole for life, provided that such make-whole shall expire with respect to the interests in the Junior Last Out Convertible Term Loan that are converted.

(e) Conversion feature (key terms): (i) principal amount of Junior Last Out Convertible Term Loan outstanding at closing convertible into 5% of the common shares of CPC (the “Converted Shares”) (pro forma for the amounts to be funded under the KGI Funding Commitment and subject to dilution from any customary management equity incentive plan and customary anti-dilution protections), with the as-converted percentage of the Converted Shares increasing proportionately as the principal amount of the Junior Last Out Convertible Term Loan accretes as a result of PIK interest being paid thereon, (ii) interests in the Junior Last Out Convertible Term Loan shall be convertible, in whole or in part, at any time into Converted Shares solely at the election of each holder of an interest in the Junior Last Out Convertible Term Loan, which election shall be made in such holder’s sole discretion, (iii) following conversion, holders of Converted Shares shall be entitled to customary minority shareholder rights, including, without limitation, tag-along, pre-emptive and informational rights and (iv) put/call rights, exercisable with respect to Converted Shares by the holders of Converted Shares and CPC, respectively, at any time after the New Term Loan has been repaid or refinanced in full, in each case, at a price determined by reference to the equity value of CPC, which shall be calculated by multiplying CPC TTM EBITDA at the time of the exercise of the applicable put/call rights by 4.0 less CPC net debt.

(f) Security: Charge over the working and non-working capital assets of CPC subject to the ABL Credit Facility, the Senior Secured Term Loan and the New Term Loan.

(j) Capital expenditures: Maintenance capital expenditures to be determined and no limit on safety capital expenditures.

(k) Asset sales: 100% of cash proceeds of asset sales to be used towards repayment of Junior Last Out Convertible Term Loan, subject to: (i) the terms and conditions of the ABL Credit Facility and the New Term Loan, and (ii) an exception for asset sales with respect to immaterial or obsolete assets, which sales are effected in the ordinary course and in a manner consistent with past practice in exchange for proceeds of less than C$1.0 million (taking into account, and aggregating such proceeds with, the proceeds derived from any related or similar asset sales). The net proceeds of such excepted asset sales to be reinvested in the business pursuant to a customary reinvestment provision as agreed by the parties.

(l) Restricted payments: $0.0 (except to support market interest service obligations in connection with HoldCo project finance and equipment finance indebtedness permitted to be incurred pursuant to Section 8(g) above, so long as (i) all of the proceeds of such indebtedness so incurred are used to fund the purchase or acquisition of assets utilized solely for the benefit of CPC and its operations and (ii) the net effect of the use of such assets is an increase in the EBITDA of CPC on a pro forma basis of an amount equal to at least the amount being upstreamed to HoldCo; provided that to the extent such increase to EBITDA is not realized within two quarters of the payment of the related interest service obligations to KGI, KGI shall immediately refund to CPC the amount of interest service obligations upstreamed that exceeds the actual increase to EBITDA, if any). For the avoidance of doubt, no dividends, salary or expenses on behalf of KGI, its principals or its affiliates shall be permitted.

(m) Affiliate transactions: Any affiliate transactions must be on an arm’s length terms and will be subject to other customary limitations.

(n) Certain operating covenants: From closing through the date that is one year following closing, (i) CPC shall conduct its operations in a manner consistent with KGI’s business plan disclosed to the Principal Stakeholders as of the date hereof as determined in good faith by CPC’s board of directors in consultation with the Principal Stakeholders and (ii) CPC shall retain at least 50% of the operating advisors and consultants disclosed to the Principal Stakeholders as of the date hereof.

(o) Pay down: Junior Last Out Convertible Term Loan to be structured to allow for pay down of debt at par, in minimum increments of not less than US$1.0 million.

(p) Events of Default: Customary events of default for transactions of this type, including the failure of KGI to satisfy the KGI Funding Commitment (as defined below), subject to a 5-day grace period, following which (i) the Junior Last Out Convertible Term Loan lenders shall be entitled to exercise their standard remedies provided for in the credit documentation in connection with all events of default and (ii) solely in the event of a failure of KGI to satisfy the KGI Funding Commitment, KGI’s direct and indirect equity interests in CPC shall be automatically forfeited to the Junior Last Out Convertible Term Loan lenders.

(q) Governing law: New York.

(r) No KGI affiliate voting: Yes.

(s) Customary reporting covenants, access to management and inspection rights: Yes.

(t) Private & Transferable: Junior Last Out Convertible Term Loan will be: (i) private, (ii) carry prescribed information rights, and (iii) transferable to “Eligible Transferees” (the definition of which term shall be agreed upon by the parties), and provided that transfers to competitors of CPC will be restricted.

(u) Administrative agent: Yes, subject to the consent of KGI, which consent will not be unreasonably withheld.

At closing, each existing holder of the Senior Secured Notes of CPC that voted the entirety of the interests held by them in favour of the Transaction by a date to be determined will receive a fee of 1% of their respective principal in the New Term Loan in cash (the “Take-Up Fee”).

At closing, KGI to provide a commitment to fund an aggregate C$60.0 million equity investment, (a) C$20.0 million of which shall be invested in CPC on the closing date, (b) C$5.0 million of which shall be invested in CPC no later than six (6) months following the closing date, and (c) at least C$35.0 million of which shall be invested in HoldCo by no later than one (1) calendar year following the closing date (the foregoing collectively, the “KGI Funding Commitment”).

CPC to be a privately held company with a board of directors comprised of at least five directors. The particulars of the governance model of CPC to be determined by KGI.

With respect to the ongoing composition of the board of directors of CPC:

(a) For so long as the Principal Stakeholders continue to hold not less than 50% of the aggregate principal amount of their interest in the New Loans immediately following closing of the Transaction, 20% of the board of directors (rounding up to the nearest whole number) shall be comprised of independent directors acceptable to the Principal Stakeholders, and one such director shall chair the audit committee, or

(b) For so long as any Principal Stakeholder continues to hold any interest in the New Loans, 10% of the board of directors (rounding up to the nearest whole number) shall be comprised of independent directors acceptable to the Principal Stakeholder(s), and one such director shall chair the audit committee.

Management to receive new incentive plan. Leadership structure to be determined by KGI.

Provided that (i) all of the necessary LSAs and support agreements have been agreed to by KGI, CPC and the Principal Stakeholders, as applicable, and (ii) KGI has entered into a customary confidentiality agreement reasonably acceptable to the parties, KGI and its representatives will be provided with free and unrestricted access to the assets, books, records, personnel and premises of CPC, in order to conduct its legal, operational and financial review. For greater certainty, the review of KGI and its representatives will include a review of CPC’s:

(a) Litigation, including any First Nations’ litigation,

(b) Employee, pension and other post-employment benefit obligations, and

(c) Carry-forward tax attributes.

KGI’s due diligence review to be completed by the Diligence End Date or such other date agreed to by the parties.

CPC will be responsible for and bear all of the costs incurred at any time in connection with negotiating, pursuing and completing the Transaction, including, for greater certainty, the fees and expenses of CPC and the Principal Stakeholders, fees and expenses of Ducera Partners LLC and Osler, Hoskin & Harcourt LLP, the Take-Up Fee, and any other costs, payments, fees and expenses contemplated by this Acquisition Term Sheet (except for the KGI Funding Commitment).

Fee cap to be determined.

Tax structure of the Transaction to be evaluated and agreed by each of the parties.

The entering into of Definitive Documentation in connection with the Transaction to be subject to the completion of conditions precedent customary for transactions of this nature, including:

(a) Principal Stakeholders’ review of, and satisfaction in their sole discretion with, KGI’s business plan and entering into agreements with KGI supporting the Transaction, including LSAs.

(b) Support agreement entered into between KGI and CPC that is acceptable to each of the parties.

(c) KGI’s due diligence investigation of the assets, affairs and condition of CPC, and satisfaction with the results of such investigation in KGI’s sole discretion, including, for greater certainty, with respect to CPC’s: (i) litigation, including any First Nations’ litigation, and (ii) employee, pension and other post-employment benefit obligations.

(d) Agreement on ABL Credit Facility transaction that is acceptable to each of the parties.

(e) Agreement on Senior Secured Term Loan transaction that is acceptable to each of the parties.

(f) Agreement on the terms of the New Term Loan that is acceptable to each of the parties.

(g) Agreement on the terms of the Junior Last Out Convertible Term Loan that is acceptable to each of the parties.

(h) Voting support agreements entered into with a majority of the existing shareholders of CPC, excluding the Principal Stakeholders, to vote in favour of the Transaction and agree to have their common shares acquired for cash consideration of C$6.0 per share.

(i) Agreement on the treatment of CPC’s outstanding equity-based incentive plans that is acceptable to each of the parties.

(j) Delivery of executed and fully effective (subject only to the occurrence of the closing) purchase contracts entered into by CPC (or to be automatically assigned to CPC concurrently with the closing) representing an aggregate increase in the per annum orders for newsprint equal to at least 200,000 tons over a duration to be agreed upon.

The Definitive Documentation will be governed by and construed in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable in the Province of British Columbia, except for the Definitive Documentation relating to the New Term Loan and the Junior Last Out Convertible Term Loan, each of which will be governed by and construed in accordance with the laws of the State of New York.