GNP secures two big financing pieces

MILLINOCKET – Two of four major financing deals Great Northern Paper Inc. is seeking to fund its paper mill modernization project and to refinance its initial purchase loan are complete, the company announced Friday.

Great Northern has secured loans with the John Hancock Bond and Financial Group and Congress Financial Corp., two large financial institutions. Officials declined to disclose the amount of the loans.

An official for the Finance Authority of Maine believes GNP is seeking a total of $150 million from the four sources, including $25 million from FAME.

Part of Great Northern’s financial agreement with John Hancock includes forming a new company – Maine Timberlands Co.- for 380,000 acres of forestlands. The new company will be a wholly owned subsidiary of Great Northern, which will continue to manage the forestlands. Essentially, most of the company’s timberlands are being used as collateral for the loan.

“The sole purpose of creating the new company was to facilitate the loan with Hancock, which is just like a mortgage on a person’s home,” said GNP spokesman Brian Stetson.

The financing pieces will fund Great Northern’s $100 million modernization project and will replace financing it earlier secured for the purchase of the company from the Bank of Montreal.

“All four components of the refinancing are needed to close out our initial loan with the Bank of Montreal, provide funding for the capital improvement projects under way and support the ongoing operations,” stated GNP President Eldon Doody in a letter to employees.

Last August, Inexcon of Maine Inc., led by executives Lambert Bedard and Joe Kass, took over the business after purchasing GNP from paper giant Bowater Inc. for $250 million. The sale included both the Millinocket and East Millinocket paper mills, more than 400,000 acres of timberlands, and a massive hydroelectric system on the West Branch of the Penobscot River.

Currently, Great Northern also is seeking two additional financing pieces. One is through a private institution and is expected to be complete by the end of January. The last critical piece of the financing is a $25 million state-backed loan from FAME.

On Thursday, the FAME board met to review information about Great Northern’s application for a low-interest loan through the agency’s major business expansion loan program.

Charles J. Spies III, FAME’s chief executive officer, said the $25 million state-backed loan being sought by Great Northern was part of a total $150 million package to refinance some of the company’s existing debt and to fund the modernization project.

Spies, who described the meeting as an informational session, said the agency’s credit committee would review the application and make a recommendation to the FAME board. The company’s application could be considered next month.

“The completion of the four financing pieces will put the company on a sound financial footing,” said Stetson. He said the four financing pieces are essential to keep the company’s modernization project on schedule.

East Millinocket and Millinocket town officials said they are pleased to learn two loan loans were complete.

“We want the company to do well,” said East Millinocket Administrative Assistant Mary Morris.

Millinocket Town Manager Gene Conlogue agreed.

“This is a major step forward for GNP,” said Conlogue. ” It should be sending a real message to people who had any doubts or concerns. These people [the owners] are dead serious about making the mills more profitable,” said Conlogue.

Great Northern is in the process of switching from traditional products like newsprint to specialty grades of paper. To accomplish the switch, Bedard and Kass promised investments of more than $100 million to century-old GNP. “We are committed to our business plan and we are doing exactly what we said we would,” said the company’s chief executive operating officer.

Rebuilding the 30-year-old No. 11 paper machine at the Millinocket mill is the cornerstone of Great Northern’s business plan to become a coated and uncoated specialty paper producer.

Next week, a team of Great Northern officials will travel to Finland to make a final inspection of some of the newly manufactured components for the Millinocket paper machine rebuild project. Ten months ago, Great Northern cut a deal with Valmet Corp. of Finland for the purchase of new paper machine equipment. The Finnish company is the world’s leading supplier of technology, systems and equipment for pulp, paper, converting and panel board industries.

The new paper machine parts are expected to arrive in Millinocket between March and May. The company plans a 42-day shutdown of the old paper machine in July and expects the newly rebuilt machine to be up and running by late August.

John Hancock’s Bond and Corporate Financial Group is part of the John Hancock Life Insurance Co. The company is publicly traded on the New York Stock Exchange. It reported assets of $71.4 billion at the end of 1999.

Congress Financial Corp., an industry leader in asset based finance, specializes in transactions from $3 million to $250 million. It has the assets of a $205 billion bank holding company behind it.