RICHMOND, B.C. - Specialty paper producer Catalyst Paper Corp. (TSX:CTL) says that one of the unions at its Crofton mill in B.C. has rejected a new contract that must be ratified as part of the company's new refinancing plan to stay alive.

The Richmond, B.C.,-based company, which has been struggling to emerge from its financial woes, said Monday that the other union local at the mill in Crofton, B.C., has voted for a new contract.

Unions at other company mills have also backed new cost-cutting contracts as part of the planned refinancing, which would improve Catalyst Paper's finances but give control of the company to its bondholders.

The pulp and paper company said the latest development was a setback to its restructuring efforts but did not say whether the rejection would kill the recapitalization deal.

Earlier this month, Catalyst received the go-ahead from a court in British Columbia to begin a planned restructuring, while at the same time filing for protection from creditors in the United States.

The company reached an agreement with creditors for a refinancing that will significantly cut its debt, but one of the stipulations required unanimous backing by the company's six union locals for new labour contracts.

Catalyst said that the local division of the Pulp, Paper and Woodworkers Union of Canada, representing 380 employees, voted down the agreement over the weekend, while the Communications, Energy and Paperworkers Union, representing 700 employees, supported it.

According to the website for the Pulp, Paper and Woodworkers Union of Canada, workers turned down the contract by a margin of 58 per cent as 180 voted against the deal and 132 supported it.

"We started discussions with all parties early knowing that difficult choices lay ahead and that decisions could not be taken lightly to successfully close a very complicated but vital restructuring process," Catalyst president and CEO Kevin Clarke said.

"With five union locals ratifying the new labour agreement — a commitment to our company that is very much appreciated — it is disappointing that we could not gain support of the sixth union local."

In a separate announcement, the company also said it has received additional support for the recapitalization plan which brings its overall support level to about 79.47 per cent of its 11 per cent senior secured notes due 2016, and about 54.96 per cent of its 7 3/8 per cent senior notes due 2014.

Catalyst Paper manufactures diverse specialty mechanical printing papers, newsprint and pulp and sells to retailers, publishers and commercial printers in North America, Latin America, the Pacific Rim and Europe.

The company has three mills in British Columbia and one in Arizona, with a combined annual production capacity of 1.9 million tonnes.

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