Fortress chief executive Chadwick Wasilenkoff said the changes will provide increased financial flexibility for the company's specialty cellulose mill in Thurso, Que., that has been hurt by low prices for the dissolving pulp it produces.
The Investissement Quebec loan that was originally due to mature on April 30, 2020, has been extended more than six years to Dec. 31, 2026.
In addition, no interest on the balance owing will be applied from May 1, 2014 to Dec. 31, 2016. After Jan. 1, 2017, the annual interest rate will be five per cent.
Payments on the principal are also suspended until March 31, 2017, when Fortress will begin to repay the money in quarterly installments.
In exchange, Investissement Quebec can receive up to $14.25 million if the Thurso mill produces excess cash flow as defined by the agreement. It is also getting more warrants to purchase Fortress shares.
The Vancouver-based company must seek approval from the province's investment arm for shutdowns outside of normal operations, other than unusual issues such as labour disruptions.
Fortress (TSX:FTP) has agreed to spend at least $25 million over three years on capital investments at the mill, which is less than had been planned. Capital expenditures are projected to be about $12 million for this fiscal year.
The company has been grappling with the impact of duties imposed by China on dissolving pulp which used to make rayon for clothes and other products.
China first imposed temporary duties in November 2013 against Canada, the United States and Brazil, claiming the imports hurt its domestic pulp market. In April, China permanently imposed duties of between 13 and 23.7 per cent. Canada filed a complaint to the World Trade Organization in October.
Mark Kennedy of CIBC World Markets said the amendments will prevent Fortress from using its cash for the loan while pulp prices are at a low. During the third quarter, prices hit a more than five-year low.
"They've bought themselves about 2 1/2 years of breathing space here and the hope is that by the time you get there dissolving pulp markets have turned around enough that the mill is generating better levels of cash flow," Kennedy said in an interview.
Fortress has taken steps to cut costs at the Quebec mill, including reducing inventories and production costs.
During the third quarter, it trimmed the net loss from continuing operations to $5.9 million from $13.4 million a year earlier as higher pulp shipments and its security paper operations increased sales 52 per cent to $80.4 million.
On the Toronto Stock Exchange, Fortress shares rose nearly 10 per cent, gaining 18 cents at $2.08 in Wednesday afternoon trading.
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