Eastern Pulp’s $2.5M loan awaits judge’s OK

BANGOR – Bankrupt Eastern Pulp and Paper Corp. tentatively secured one of the most important loans in its history Monday. Without the infusion of $2.5 million, the company might have been forced to shut down its two mills next week.

Eastern Pulp’s apparent desperation in securing the loan has been called a “mission critical” situation by one of the company’s creditors.

After more than three weeks of trying, a federal bankruptcy judge on Monday finally received the terms of a $2.5 million loan that is needed to finance routine annual maintenance at Eastern Pulp’s two mills in Lincoln and Brewer. The scheduled maintenance, which is supposed to start next Monday, is required to renew operating licenses, including some that expire on Sunday night. Without the licenses, the company would not be able to operate its mills or secure required insurance on its machinery and other equipment.

According to documents being circulated among companies performing the maintenance work on Monday, the actual cost of the work was $1.726 million. Eastern Pulp, according to terms of the loan, can only borrow an amount necessary to cover routine maintenance costs and nothing else.

U.S. Bankruptcy Judge James B. Haines Jr. has not signed the loan documents yet, but his signature is expected today or Wednesday. Eastern Pulp isn’t worried about Haines not signing the documents because over the weekend the company was able to come up with loan terms that were satisfactory to its creditors and its new lender, Corsair Special Situations Fund of New York City.

The creditors, including Cianbro Corp. of Pittsfield, Congress Financial Corp., which already is owed $27 million by Eastern Pulp, and the official committee of unsecured creditors of the papermaker, had been fighting the original terms of the loan for weeks.

The terms have since been changed, and they have all agreed to the loan.

According to court documents, Corsair will loan Eastern Pulp up to $2.5 million at 15.45 percent interest plus a $75,000 fee that is payable at the closing of the loan. The loan will need to be repaid in 150 days if Eastern Pulp can emerge out of Chapter 11 bankruptcy protection by then, or within a year if not.

Congress Financial, which was Eastern Pulp’s primary secured creditor until this loan, will receive at least $25,000 from Eastern Pulp to allow Corsair to top it as the company’s primary creditor, or the first one to get paid back. Corsair will be the first on a list of lien holders claiming rights to Eastern’s machinery, equipment and real estate if the mills ever are closed and liquidated. Congress is second on the list, followed by Shelburne Corp. of Delaware, which is owed at least $4 million, and Eastern Holding Co., which is Eastern Pulp’s parent company and is owed about $5 million.

Congress maintains top priority liens on Eastern’s receivables and inventory, according to court documents.

Cianbro, which will be performing maintenance work on the boiler at Eastern Pulp’s Lincoln mill, worked out an arrangement with the company to be paid in advance. Cianbro still is owed $585,000 for last year’s maintenance work, according to court documents.

Tom Stone, Cianbro’s chief financial officer, said Monday that under the terms of the agreement, Cianbro would receive $430,000 in advance. About $150,000 would be applied to the past-due bill, and the other $280,000 would cover this year’s expenses.

“We wanted to make sure we were paid for the work before we did the work, and we are,” Stone said.

He said Cianbro already has received a purchase order for the work, and “we’re planning to mobilize [our workers] right now.”

Eastern Pulp’s unsecured creditors committee, which also objected to the original terms of the loan, signed off on it once given the condition that concerns over payments to unsecured creditors are addressed under Eastern’s plan to reorganize and emerge from bankruptcy, Robert Keach, the unsecured creditors’ attorney, said Monday. Unsecured creditors are owed more than $40 million, according to loan documents.

Keach said he could not disclose what exactly is being discussed with the company, but that the talks were progressing.

“We have made sufficient enough progress for us to hold our nose and allow [this loan] to happen,” Keach said.

Eastern Pulp filed for Chapter 11 bankruptcy protection in September 2000. The company operates Lincoln Pulp and Paper in Lincoln, which employs 482 people, and Eastern Fine Paper Co. in Brewer, which employs 243 people.