BANGOR – Great Northern Paper Inc.’s two plants in Millinocket and East Millinocket will be kept heated at least until Wednesday, but the more than 1,100 employees already shut out of work for almost three weeks will not be returning any time soon to operate the machines inside those facilities.

On Friday, the papermaker received approval from a federal bankruptcy court judge to borrow at least $700,000 to pay for “bare necessities” through Wednesday. Those obligations include paying employees who have been working as part of a skeleton crew at the plants to protect the machines and pipes from freezing and bursting, and paying for oil to heat the buildings.

The paper machines and Great Northern’s estate are collateral for the loans.

But that was not exactly what Great Northern wanted. Less than 24 hours after it filed for bankruptcy, Great Northern’s attorneys showed up in court intending to persuade Judge Louis H. Kornreich to sign off on an ambitious but controversial financial plan they said would bring back the 1,130 workers to process awaiting orders.

The plan included stopping the payment of health insurance benefits to the company’s 667 retirees for at least 60 days, halting the company’s contributions to 401(k) accounts, and securing up to $25 million in financing from the company’s primary lender, Congress Financial Corp., which already has lent the company $47 million in the past two years. GNP still owes Congress Financial $15 million.

“The company has run out of funds,” said Harold Murphy, a Boston attorney for GNP. “We have not been able to meet our payroll, which was due” Thursday.

Kornreich, however, politely admonished the papermaker for not giving attorneys for creditors and the 16 unions represented at the two plants enough time to respond to the plan, particularly since Great Northern’s board of directors approved filing for bankruptcy on Dec. 23.

“I don’t believe that notice to be adequate,” said Kornreich, before denying Great Northern’s request for an immediate emergency hearing in which the papermaker hoped the financial plan would be approved. He rescheduled the hearing for Jan. 17 at 9 a.m.

Instead, Kornreich approved the $700,000 loan because under a local bankruptcy rule, the papermaker was required to show through evidence “that without relief, irreparable harm [would] come to Great Northern between now and Wednesday.”

The short notice of the bankruptcy filing angered attorneys, but numerous union representatives and retirees were startled when they found out Friday morning that Great Northern had not paid its employees as it had promised on Thursday.

Many of the workers forced into what was promised to be a two-week shutdown said they gave up vacation time so they could continue to receive a paycheck. Their pay was supposed to be automatically deposited into their bank accounts on Wednesday night, and by Thursday afternoon, it still wasn’t there.

Lucien Deschaine, an international official representing the Paper, Allied Chemical and Energy Workers International Union, said union members who attended a meeting Thursday afternoon were told “the money was being withheld by a particular lender.”

By 3 p.m., he said, “we were given the clear impression that payroll had been met.”

“They were going to make payroll by the end of the day,” said David Lowell, a representative of Local 99, International Brotherhood of Machinists and Aerospace Workers. “It’s the most secretive company I’ve ever seen.”

Great Northern owner Lambert Bedard, flanked in the Bangor courtroom by two men whom spectators called “bodyguards,” declined twice to comment on Friday’s bankruptcy proceedings.

Loan agreement

According to court documents, Great Northern’s gross sales in 2002 were more than $260 million, but the company experienced an estimated net loss of $50 million.

On Friday, checks the company had written to pay bills were being sent back and creditors were being notified that there were insufficient funds to pay them, said Ben Marcus, an attorney for Key Bank, where the paper company has its accounts.

“Checks are being presented against those accounts today and we’re not honoring them,” Marcus said.

Kornreich instructed Marcus that Key Bank should cash all checks that are related to payroll, and Great Northern will put the money into the account to cover them. Also, only bills agreed to be paid by the court Friday should be processed, he said.

GNP attorney Murphy said the company had customers waiting for orders to be filled. If there isn’t any indication that orders will be filled, “customers who are in the business will take their business elsewhere.”

He said money in the initial financial plan – which will be considered next Wednesday – would be spent on “preservation costs.”

On Friday, Congress Financial Corp. and BBC Equipment Leasing Corp., a subsidiary of Boeing Corp., agreed to lend Great Northern at least $700,000 if they were put at the front of the line of creditors to be paid back during the bankruptcy reorganization process.

Since January 2001, Congress Financial and Great Northern have operated under a working capital agreement, secured by the paper company’s accounts receivables and inventory.

The paper company has a $50 million capital lease agreement on fixtures and equipment in its mills with BBC Equipment Leasing.

In court documents, Great Northern stated it has unsecured non-priority claims of between $45 million and $55 million, and “substantial future obligations pursuant to its collective bargaining agreements with the unions … and contractural obligations for healthcare benefits to its retired union and nonunion employees under five healthcare plans.”

The loan agreement with Congress Financial and BBC Leasing is contingent on Great Northern receiving payment on some of its bills. An attorney for Congress said $700,000 is available for loan immediately, and another $400,000 could be available by next Wednesday. BBC Leasing is lending $250,000.

Both lenders said the loans were contingent on Great Northern’s protecting its assets and estate from exposure to cold weather.

According to Murphy, GNP will spend $979,000 to cover payroll for non-salary and union workers through Jan. 12, including the paychecks that were due Thursday, and pay for heating oil and other miscellaneous expenses.

If any money is left over, GNP will pay off its health insurance costs for Thursday through next Wednesday, Murphy said. But, he added, that’s unlikely. According to court documents, Great Northern owes $2.644 million in health insurance costs for November and December.

“I don’t think we’re going to have any funds to pay those,” Murphy said.

Standing by

Throughout the off-again, on-again hearing, creditors, union representatives and retirees sat patiently waiting for some kind of assurance that they would still have jobs, severance packages and health benefits.

Kornreich stopped the proceedings several times to explain the bankruptcy proceedings to the more than 50 people who filled the courtroom.

“Things may happen this morning that everyone doesn’t understand,” Kornreich said.

Afterward, standing outside in freezing winds, men with more than 30 years of time at the plant agreed with him.

“It’s a shame against society,” said John Harmon, who worked at Great Northern for 30 years.

Added James Mingo, “This tells you what they think of us.”

Retiree Otis Leavitt said he got little assurance that his wife, Dale’s, eye surgery later this month will be covered by the company’s health insurance plan.

“I’ll have to wait and see if they’ll cover it,” he said.

Matt Polstein, co-owner of PSP Wood Recovery in Millinocket, said he is optimistic Great Northern will reorganize and successfully emerge from bankruptcy protection or find a buyer for the company.

Polstein, who also owns separately a restaurant and river-rafting company, said his wood recovery business is owed $242,000 and called the bill “a sacrifice on our part.” PSP recovers sunken logs from lakes on GNP’s properties.

“We hope we’re still going to be paid,” said Polstein, whose business is a non-secured creditor. “It’s not like we can go do this for other people. This is a unique situation.

Early next week, Great Northern’s owner is expected to conduct a closed-door meeting with officials from the 16 unions to discuss the company’s bankruptcy plans and other concerns workers may have, said Jay Nadeau, president of Local 1612, United Brotherhood of Carpenters and Joiners of America.

He said he expects the meeting to be a constructive discussion on “how we can make the mill whole again” and present it to Kornreich on Wednesday.

“It would look much better to the judge if the unions and the company sat down and worked out a deal,” Nadeau said.

Wednesday’s hearing

The emergency hearing next Wednesday will be a review of the company’s financial plan, which includes interim relief from union agreements and paying benefits to retirees.

But Gayle Allen, an attorney for the trustee overseeing the bankrupt Bangor and Aroostook Railroad, on Friday questioned the urgency of some of the funding requests presented in that plan and the need to have them approved Friday. She is expected to file a response to the rest of the plan by Wednesday’s hearing.

Allen told Kornreich that Great Northern knew of its $2.644 million health care bill for up to two months. She also noted that even though the paper company’s board approved filing for bankruptcy on Dec. 23, it still paid about $500,000 in salaries to managers on Dec. 31.

“There are things in here that are not an emergency,” she said. “For [Great Northern] and the lenders, the operations shut down in mid-December, but some things have continued to be paid,” Allen said.

Snowe plan

U.S. Sen. Olympia Snowe, in a statement released late Friday evening, said she is trying to secure financing to breathe life into the mills.

Snowe said she is pursuing whether the promise of tax credits could entice companies to invest in Great Northern.

The tax credits would be offered under a program called the “new market tax credits,” which is aimed at encouraging investments in new and emerging markets, rural areas and natural resources by offering investors a more favorable return on their investment through a federal tax credit, Snowe said.

Coastal Enterprises Inc. has submitted a $90 million proposal under the program. CEI intends to set aside $40 million in tax credits for investments in natural resource-based industries, and has targeted $30 million to support operations at Great Northern, she said.

“With substantial financial obligations forcing Great Northern to pursue bankruptcy, it is essential we pursue every avenue in seeking federal or private investment support to ease the company back to fiscal health,” Snowe said.