GNP awaits financing to alleviate cash crunch

Great Northern Paper Inc. expects its tight financial times to ease up shortly, which is good news for the towns of East Millinocket and Millinocket. The towns rely heavily on tax revenues from the company to fund municipal operations.

For the first time in decades, Great Northern is making installment payments on its tax bills instead of paying them in full, causing concern among town officials who worry about municipal cash flows.

Two major financing packages will be complete by early next week, a third one by the end of the month and the final piece by March, according to top Great Northern officials.

The primary cause of Great Northern’s current tight financial condition is that the company has used operating cash to fund some of its $100 million paper mill modernization while waiting to complete bank financing for the project. Recent production losses in both paper mills are also contributing to the company’s money crunch.

“We have spent $30 million out of our regular cash flow for the capital investment program on paper machine No. 11 [at the Millinocket paper mill] and other projects while we are waiting for the financing,” said GNP Chief Operating Officer Lambert Bedard during a telephone interview on Friday.

Bedard said the financing consists of four pieces, three through private banks. Also, the company has asked the Finance Authority of Maine to consider a $25 million state-backed major business expansion loan.

“Until we close on the financing we have to tightly manage our cash,” said Brian Stetson, GNP’s spokesman. “We are being very judicious in paying the bills and managing the cash to keep the company on solid ground until we get an infusion of funds from the financing.” Stetson expects the company’s financial situation will be alleviated in the coming months.

In purchasing the company 17 months ago, Bedard and Joe Kass planned to quickly move the business from producing newsprint to specialty grades of paper to make it more profitable. That goal will be accomplished with the modernization project, which includes upgrading the Millinocket mill’s largest paper machine by this fall.

Because some components for the paper machine upgrade take many months to build, the company used its operating cash to keep the project moving forward on schedule. The company expects to begin receiving shipments of parts between February and May.

While Bedard said much has been accomplished in the past 17 months, he is the first to admit the company has faced many challenges, including production losses along with higher fuel and energy costs.

Stetson said production losses from two mishaps – one at each mill- “has made cash flow tight temporarily.”

A rupture in the main pipeline to the Millinocket mill’s waste treatment plant early last month stopped production for three days.

In East Millinocket, one of the two paper machines has not produced paper for more than two weeks because a granite press roll failed. The roll has been replaced and was expected to be making paper by late Friday. The mill’s second paper machine did not produce paper for at least two days late last week, but now is back on line.

Stetson said tight cash flows during past decades were alleviated with an infusion of money from the corporations that owned the company. “The bottom line is this is a small Maine-based company without a deep-pocket parent company,” he said.

Great Northern’s financial situation has sparked concern from officials in the towns, who say their cash flows are getting tight. About 82 percent of East Millinocket’s tax revenue and about 47 percent of Millinocket’s tax revenue comes from the company.

Millinocket Town Manager Gene Conlogue and East Millinocket Administrative Assistant Mary Morris said the towns are not in a crisis. Both towns have cash on hand equal to about two months operating costs. In the meantime, both towns are working on tax anticipation notes.

The two towns have semi-annual tax billing, where one half of a taxpayer’s bill is due on one date and the other half is due on a second date. If the appropriate amount is not paid on those dates interest is charged. Interest is 10.75 percent per annum in each town.

In East Millinocket, Great Northern paid about $253,000 of its $1.789 million first-half tax bill on Dec. 5, the due date. Since then, the company is being charged about $450 a day in interest on the unpaid balance. The second-half tax bills are due by Feb. 1. Officials said it cost the town between $400,000 and $500,000 a month to operate. The town has about $600,000 in its checking account and about $466,000 in reserve funds.

John Rouleau, chairman of the East Millinocket Board of Selectmen, said he could not remember a time when the company did not pay its taxes in full.

“We aren’t expecting a huge inflow of cash from taxes outside of GNP’s,” said Morris referring to the fact that many other taxpayers have already or will pay their bills in full by the final due date.

In a meeting this week, selectmen advised department heads that they would put a hold on any large expenditures until further notice. The $115,00 municipal building renovation project has been put on hold.

In Millinocket, Conlogue said Great Northern paid approximately $500,000, or about one-third of the first half of its tax bill in November 2000. He estimates the company is being charged about $350 a day in interest on the unpaid balance. The second-half taxes are due on April 13. Conlogue said the company plans to pay the remainder in installment payments.

Conlogue said the town had about $1.7 million in cash at the end of the year. It costs the town about $1 million a month to operate. He said the town could face a cash crunch by March. He said the town would be fine if the company makes its April payment and pays the remainder of its first half bill.

Stetson said the company has every intention of paying its tax bills.

“The towns will get their money, but in the form of installments,” he said. Also, he said the company will pay its vendors and suppliers.

Both town and company officials said the tax payments had nothing to do with a pending dispute between the towns about past taxes. Towns are expecting to receive a report on the revaluation of both paper mills within a week.

Bedard dismissed speculation about the company selling off its woodlands. “The woodlands are not for sale,” he said.