My understanding is that SD lost the tapes in a fire, and had to essentially re-record Katy Lied from scratch.
The problem was using a dbx noise reduction unit that failed and caused sonic problems with master tapes. IIRC, Roger Nichols was able to help restore the tracks.
A friend of mine is an acclaimed mastering engineer and re-mastered a version of the album for audiophiles on CD - GREAT sounding version. Alas, due to legal problems his re-mastered album never saw commercial release.
As an aside, a local teen (Rick Zehringer on lead guitar) started a group known as the McCoys and had a small hit with “Hang On Sloopy”. He later changed his last name to Derringer and became a highly sought after studio musician who played on “Katy Lied” and many SD albums.