Catalyst Paper Corp. has deferred a $21 million US interest payment due Thursday as the B.C. pulp and paper producer continues to review alternatives to cut its overall debt.

The Richmond, B.C.-based company said the payment applies to its senior secured 2016 notes.

Catalyst announced in June it was reviewing its capital structure and said its key priority is to reduce debt in current business and economic conditions.

"This is a very complex process and while we cannot prejudge outcomes, we are firmly committed to achieving a solution that puts Catalyst on stronger financial footing for the future," stated CEO Kevin Clarke.

The paper producer said its operations and those of its subsidiaries should continue as usual with obligations to customers, suppliers and employees being met.

Catalyst has 30 days to pay the interest before triggering default on its corporate debt.

Failure to pay would allow the noteholder to immediately declare the $390 million principal and accrued interest "due and payable."

Default could also be declared on $250 million senior 2014 notes if the amount isn't paid after another 30 days.

Catalyst owed $16 million in principal under an asset-backed corporate debt held by JP Morgan as of Nov. 30.

Catalyst Paper 3-month chart

Last month the company reported it lost $205.7 million in the third quarter on a $151-million impairment charge on the Snowflake recycled newsprint mill in northeastern Arizona.

Sales rose to $340.3 million from $322.3 million.

Mike Richmond, an analyst with Salman Partners, has a sell rating on Catalyst shares.

"We continue to think that the company's balance sheet is over-levered and we expect that a dilutive equity financing will be necessary to address its unbalanced capitalization," he wrote in a report in November.

Continued weak print advertising resulted in another quarter of declining year-over-year demand for both coated and uncoated specialty grades of paper, although there was a "modest price improvement" for specialty grades and previously announced price increases were partially implemented.

Directory and newsprint demand were also down from the same quarter a year ago and the average North American benchmark

The company manufactures diverse specialty printing papers, newsprint and pulp. Its customers include retailers, publishers and commercial printers in North America, Latin America, the Pacific Rim and Europe.

It has four mills located in British Columbia and Arizona with a combined annual production capacity of 1.9 million tonnes.

On the Toronto Stock Exchange, Catalyst shares closed down a half-cent, or 14.3 per cent, at three cents.