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Catalyst Paper Corporation to purchase paper mills in Maine and Wisconsin

Friday, October 31, 2014

Press release from the issuing company

RICHMOND, BC - Catalyst Paper Corporation (TSX: CYT) ("Catalyst" or the "Company") today announced that it has entered into an Asset Purchase Agreement (the "Agreement") with NewPage Corporation, NewPage Wisconsin System Inc. and Rumford Paper Company (the "Sellers") to purchase the Biron paper mill located in Wisconsin and the Rumford pulp and paper mill located in Maine, USA (the "Paper Mills") for consideration of US$74.0 million, subject to certain adjustments (the "Transaction").

Catalyst intends to finance the acquisition through a combination of advances under its revolving asset-based credit facility (the "ABL 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 aUS$25.0 million offering of additional PIK Toggle Senior Secured Notes ("Additional PIK Toggle Notes"), which would form part of the same series as Catalyst's outstanding PIK Toggle Senior Secured Notes (the "PIK Toggle 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 Inc. (the "Verso Transaction"), 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.

"With this Transaction, Catalyst will be better able to serve new and existing customers through operational synergies and a more diversified and higher value suite of products," said Joe Nemeth, President and CEO of Catalyst.

"Our acquisition of these U.S. pulp and paper mills, once complete, will support our efforts to improve our balance sheet and enhance the Company's long-term competitiveness," added Nemeth.

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 ofUS$782.2 million for the twelve months ended September 30, 2014 and US$787.1 million for the twelve months ended December 31, 2013. Total mill contribution was US$29.5 million and normalized mill contribution was US$45.6 million for the twelve months ended September 30, 2014, compared to US$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 US$10.0 million per year. Capital spending for the two mills is expected to be similar to that of our Canadian mills, approximately US$7.0 million per facility per year.

Transaction and Financing

Under the terms of the Agreement, Catalyst will acquire the Paper Mills for consideration of US$74.0 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 $50.0 million, from $175.0 million to $225.0 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 issueUS$25.0 million of Additional PIK Toggle Notes.  The Additional PIK Toggle Notes will be offered by Catalyst to eligible holders of PIK Toggle Notes, with eligible offerees being permitted to subscribe for their pro-rata share of Additional PIK Toggle Notes based on the aggregate principal amount of PIK Toggle Notes held by such holders relative to the total aggregate principal amount of outstanding PIK Toggle Notes. The Additional PIK Toggle Notes will be issued at a 20% discount to face value.  When issued, the Additional PIK Toggle Notes are expected to form part of the same series of notes as the PIK Toggle Notes. Catalyst and certain holders of its PIK Toggle Notes have executed a definitive term sheet to backstop the issuance of Additional PIK Toggle Notes. The offering of Additional PIK Toggle Notes is expected to close concurrently with the consummation of the Acquisition or shortly thereafter. As the terms of the offering of Additional PIK Toggle Notes have not been finalized, there is no certainty that such a financing will be completed or completed on the terms described above.  Completion of any such offering will be subject to receipt of any required third party, regulatory and exchange approvals.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy any securities in any jurisdiction.  None of the securities have been or will be registered under the United States Securities Act of 1933, as amended (the "1933 Act").  Such securities may not be offered or sold in the United States absent registration under the 1933 Act or an applicable exemption from the registration requirements of the 1933 Act.

Advisors

CIBC is acting as financial advisor to Catalyst and its Board of Directors.  Catalyst's legal counsel is Sidley Austin LLP and Lawson Lundell LLP.

 

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