Eastern Pulp postpones loan hearing NYC blackout slows negotiations with creditor, lender; new date set Aug. 21

BANGOR – Bankrupt Eastern Pulp and Paper Corp. has not yet been able to complete a $2 million loan agreement with a New York City lender, and the power blackout last week had a small role in contributing to the delay.

Eastern Pulp was to be in U.S. Bankruptcy Court in Portland this morning to secure a judge’s approval of the $2 million loan from Corsair Special Situations LP.

The hearing has been rescheduled for 9 a.m. Thursday, Aug. 21, at U.S. Bankruptcy Court in Portland.

The loan carries a 15.45 percent interest rate, along with a 3 percent “upfront” fee payable at closing and other financial considerations. Eastern plans to pay back the loan in full in the fourth quarter of this year, when the company expects to emerge from Chapter 11 bankruptcy protection.

Eastern says it needs the money to finance scheduled annual maintenance at its two paper mills in Lincoln and Brewer.

Lincoln Pulp and Paper Co. and Eastern Fine Paper Co. in Brewer are scheduled to be shut down in September for maintenance that is required to satisfy property insurance requirements and regulations governing the licensing of the Lincoln mill’s boiler.

“Without property insurance and a boiler license, the mills will shut down and Eastern Pulp will be forced to cease operations,” wrote George Marcus, a Portland lawyer representing Eastern Pulp, in court documents filed last week.

The $2 million may not be enough, Marcus wrote. He said the loan could go as high as $2.5 million. And Eastern Pulp says it needs another three days to wrap up terms of the loan and get the approval from some of the company’s secured creditors.

One of those creditors is Congress Financial Corp., which on Friday objected to the $2 million loan.

According to court documents, Congress said Corsair is seeking a lien against Eastern Pulp’s real and personal property that would supercede Congress’ liens on the same property. Congress also stated that Eastern Pulp has “failed to demonstrate adequate protection” of Congress’ financial interests in the company. Congress has liens on most of Eastern Pulp’s properties and is owed roughly $27 million in loans made to the company before and after it filed for bankruptcy protection in September 2000.

“The terms of the Corsair financing are expressly prohibited by this court’s prior order approving Eastern Pulp’s postpetition financing arrangements with Congress,” wrote George Kurr of Bangor, one of several lawyers who represent Congress.

Earlier this month, Eastern Pulp planned to ask U.S. Bankruptcy Chief Judge James B. Haines to approve an expedited hearing on the loan request.

Instead, on the scheduled court date of Aug. 6, Eastern asked that the hearing be postponed until today so it could complete the terms of the loan with Corsair and try to pacify some of the objections of three creditors who questioned how the money was going to be spent.

The loan agreement stands at 44 pages plus attachments.

“As of [Friday], the parties have been unable to complete negotiations concerning the terms and conditions of the proposed borrowing from Corsair, although substantial progress has been made and continues to be made,” Marcus wrote. “Because of the complexity of the matter, which involves the need to subordinate existing secured loans, Eastern Pulp requires additional time in order to complete such negotiations and to prepare final loan agreements and other related documentation.”

The two-day blackout that hit New York City halted the negotiations late last week, Marcus wrote.

“The electrical blackout of Aug. 14 and 15 affecting New York City has delayed progress in negotiations because counsel for Corsair as well as counsel for Congress Financial Corp. are located in New York,” Marcus wrote.

After the Aug. 21 hearing, Eastern Pulp will again be in Bankruptcy Court on Aug. 25 to seek approval of a disclosure statement it intends to send to creditors and shareholders. The statement outlines the company’s plans on how it will emerge from Chapter 11 bankruptcy protection by the fourth quarter of this year.