Catalyst Paper CEO Kevin Clarke hit Vancouver Island last week to reassure some 1,200 workers that it was business as usual for his company despite it entering creditor protection. But the towns where the company operates aren’t hedging their bets on it returning to profitability.
“The impact on our community [if the mill closes], I would call extreme to very distressing,” said Powell River Mayor Dave Formosa.
Last month, the Richmond-based papermaker filed for creditor protection in BC Supreme Court after workers at its Crofton mill failed to support a labour agreement and restructuring that would have cut $315 million in debt from the company’s balance sheet.
Now, Catalyst’s court-ordered restructuring under the Companies’ Creditors Arrangement Act (CCAA) places all of its financial obligations under the supervision of the court, leaving the workers, retirees and municipalities where it operates with an unsettling view of the future.
“The impact really isn’t obvious right now because nobody really knows what’s going on,” said Port Alberni Mayor John Douglas.
“Not knowing the exact future is probably the biggest concern for our guys right now,” said Jim Britton, western region vice-president for the Communications, Energy and Paperworkers Union of Canada.
B.C. is no stranger to the boom-and-bust cycle of the resource sector, which, in the past, has ripped through towns from Tumbler Ridge to Gold River.
Although Catalyst maintains that it will continue to operate the mills, the towns where its mills are located fear a mass exodus of jobs, tax dollars and business.
Should the company’s Crofton mill shut its doors, the impact on the District of North Cowichan would be immense.
Catalyst, which is the largest pulp and paper maker on the Coast, pays approximately 28% of North Cowichan’s municipal tax bill.
Mayor Jon Lefebure said his council is considering a tax shift toward residences to reduce the municipality’s reliance on Catalyst.
The shift being considered would amount to an extra $350 bill for the average house in the coming tax year.
“There’s a huge debt on the company … we don’t have an assurance that they’ll always be there to pay their taxes,” Lefebure said.
Catalyst had some $840 million in debt as of September 30, 2011 and a nine-month net loss of $266 million.
Manhattan lender JP Morgan Chase & Co. has agreed to provide Catalyst up to $175 million in capital to help the company pay its bills during CCAA proceedings.
Clarke told Business in Vancouver the company entered CCAA proceedings with a defined strategy, but that it needs a more competitive labour agreement with workers if it wants to compete against mills around the world.
While he couldn’t guarantee the company wouldn’t shut one or all of its mills, he said a closure is unlikely.
“I can’t tell you that’s it’s not going to rain tomorrow, but I can tell you that it’s very highly unlikely ... that that would be a solution that would be practical or probable,” Clarke said.
Still, mill towns such as Powell River, North Cowichan and Port Alberni are preparing for the worst, focusing on attracting new business and shifting the municipal tax burden away from industrial landholders.
“Our concern is that if we don’t do anything then we would be coming to the taxpayers with a very critical situation,” said Lefebure.
In the past, Catalyst has launched court actions against the communities where it operates claiming that municipal tax levies were too onerous.
Clarke reiterated that municipal tax burdens remain an issue for the company.
In Port Alberni, meantime, Douglas is busy scheduling meetings with businesses that could potentially set up shop in his town, notably in tourism, shipbuilding and marine transportation.
“We need to get away from being under [Catalyst’s] umbrella and the way to do that is to develop other economies,” said Douglas.
In Powell River, however, the picture is gloomier.
Because the town isn’t located along a major highway, marine or air transportation route, its economy has become very reliant on Catalyst’s mill.
If the mill is shuttered, the town would not only lose 390 direct jobs, but also the businesses, educators and doctors that serve the working population.
“If those 400 people were out of work you could say that there’s 800 less kids in our school, 1,200 less people in our community – what does that do to the schools, teachers, doctors? It begets itself,” said Formosa.
Another group at risk is Catalyst’s pensioners.
A group of them recently hired Toronto lawyer Andrew Hatnay of Koskie Minsky LLP to protect their pension entitlements during CCAA proceedings.
Hatnay said Catalyst’s pension plan is $75 million underfunded.
“If the company does not pull through and restructure itself ... then there will be pension benefit cuts to the retirees,” said Hatnay.
Clarke said he feels comfortable that pensioners will be protected during the restructuring, though there’s no guarantee.
“Right now there’s no guarantees of anything there,” he said. “We want to do the best we can for everybody in the group.”
Still, Formosa said he’s hitting the pavement to attract new business, seeking opportunities in every sector that might generate jobs in Powell River and fend off yet another resource-town bust in B.C.
“Powell River is open for business and anybody interested in living in a great community, give the mayor a call and I’ll come down and visit them, wherever they are.” •
