Plan being pursued to reopen Eastern Pulp mills

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BANGOR – A seldom used nuance in bankruptcy law is being pursued by Gov. John Baldacci and others to reopen bankrupt Eastern Pulp and Paper Corp.’s two mills while they remain under Chapter 7 or liquidation status.

The effort, which is one of many currently under way to restart operations in Lincoln and Brewer, would put a trustee in charge of the mills’ operations while a deadline is set to sell the mills, according to attorneys close to the negotiations.

Baldacci confirmed during a telephone interview Thursday evening that the plan was being analyzed. He said his attorney, Kurt Adams, had talked with the newly appointed trustee, Bangor attorney Gary Growe, and both were evaluating the plan’s feasibility.

At least five companies or individuals are interested in buying the mills, Baldacci said. Two of the suitors will be touring the mills today, while another one will be talking to the governor by telephone. The other two suitors plan to visit the facilities next week, Baldacci said.

The plan to reopen the mills while under Chapter 7 would have to be approved and funded by Eastern Pulp’s secured lenders, including the lenders that walked away from giving the company a $3.8 million loan on Wednesday. Also, U.S. Bankruptcy Chief Judge James B. Haines would have to give his approval.

The beauty of the plan, according to attorneys who asked not to be identified, is that the lenders could be given greater collateral rights to the mills’ assets under Chapter 7. New collateral rights usually circumvent those granted under a Chapter 11 case, the attorneys said.

One of the lenders, Congress Financial Corp. of New York City, tried to secure the prime collateral spot during a bankruptcy court hearing on Jan. 7. Congress was turned down because another lender already was given the top collateral position when it granted a $2.5 million emergency loan last summer.

For the plan to work, the trustee would have to convince the judge that “nobody’s [going to be] pushed further down the hole” in debt, said one attorney.

What makes the plan unattractive is that the lenders might not be willing to fund a renewed operation because before the Chapter 7 conversion Wednesday, Eastern Pulp was in desperate need of cash and was unable to pay close to $8 million in post-bankruptcy bills, the attorneys said. Eastern blames its woes on a depressed paper industry.

Growe, whose assistant said the attorney had been inundated with telephone calls since his appointment as trustee on Wednesday, did not return a telephone call for comment.

The decision on whether to ask Haines to approve restarting the mills will rest solely with Growe. He also will have to consider whether pursuing a buyer without reopening the mills is a fiscally better alternative, or whether the mills should be closed altogether, turned over to secured creditors and sold piecemeal.

According to Adams, the governor’s attorney, Growe is amenable to returning the mills to operation under Chapter 7.

“Gary said he’s open to it, but that it depends upon the budget and the potential buyers,” Adams said. Also, the secured creditors would have to be convinced to loan the money.

“Those are big hurdles, but we’ve gotten over bigger hurdles in the past,” said Adams, referring to the Great Northern Paper Inc. bankruptcy and sale last year.

More than two weeks ago, during a meeting in his office, Baldacci told Eastern Pulp’s lenders that “liquidation was not an option.” On Wednesday, while he was in a hospital bed recuperating from an early-morning vehicle accident, the governor said he was informed that the decision to liquidate was made.

“It bothered me yesterday when I saw this,” Baldacci said. “[The company’s] viable. There’s a market for the products, and they’ve got great workers.”

The mills make tissue, specialty napkins, and coated labels, among other things.

The governor said he agrees with efforts to try to reopen the mills under Chapter 7. If that’s not possible, he said he wants a new buyer secured and quickly. He said the state is willing to negotiate with any prospective buyer over funding or environmental issues, by including the Finance Authority of Maine or the Department of Environmental Protection in any discussions.

The longer the mills are shut down, the greater the risk of potential environmental harm, Adams said. If a buyer isn’t secured, the state is considering placing a lien against Eastern Pulp’s bankrupt estate for environmental cleanup costs, which are estimated at $30 million.

“It only becomes an environmental concern if [the mills] are kept warm, then shut down and everybody walks away,” Adams said. He added that the DEP is keeping an eye on the shutdown “in case it gets dire.”

The conversion to Chapter 7 in some ways, but not all, made Eastern Pulp more appealing to prospective buyers, said Jeffrey Sosnaud, deputy commissioner of the state Department of Economic and Community Development. Some of the suitors might be motivated to purchase one or both of the mills to gain market share and keep the facilities out of the hands of their competitors, he said.

But the prospective buyers have their own hurdles to overcome. Besides a tour of the facilities, the suitors need to study Eastern Pulp’s financial and operational reports, and perform other “due diligence” assessments.

“Any buyer is going to put down tens of millions of dollars, and you don’t do that pretty quickly,” Sosnaud said. “Sometimes these deals don’t happen overnight.”

Eastern Pulp, which has been in bankruptcy since September 2000, owes about $100 million. The company employed 750 workers at its two mills, Lincoln Pulp and Paper Co. in Lincoln and Eastern Fine Paper Co. in Brewer.

On Jan. 17, the financially strapped company was forced to shut down both mills in what was called a temporary closure. Only a skeleton crew remained to keep the mills warm and ensure that the machinery was not damaged by exposure to freezing cold temperatures.

On Wednesday, Eastern Pulp had hoped to secure a $3.8 million loan to restart its Lincoln mill, returning 500 people to work, and keeping its Brewer mill warm for at least 13 weeks. But the 13-week operating budget that detailed how the $3.8 million was going to be spent was questioned on whether it covered all expenses, including paying past-due balances to some utilities that were threatening to cut off services.

Judge Haines also questioned whether the loan met federal bankruptcy standards for the period of time it would cover. He asked attorneys to rework it and return to court about two hours later.

When court resumed, Eastern informed the judge that it wanted its bankruptcy status converted to Chapter 7 because its lenders decided they could not commit to increasing the loan amount. Haines then ordered the conversion.

Help for displaced workers

Brewer area:

. Job retraining and unemployment benefits will be discussed at 10 a.m. and at 1 p.m. today at Jeff’s Catering. Brewer millworkers whose last names start with A-M will attend the morning meeting, and workers whose last names start with N-Z will attend the afternoon session.

. Food can be dropped off at the Brewer Recreation Department (Brewer Auditorium), Wilson Street.

. A food bank for displaced workers will be open from 8:30 a.m. to 2 p.m. at the Greater Bangor Area Labor Council hall, 20 Ayer St. Sponsored by PACE Local No. 1-0403.

. To donate for fuel assistance, mail checks made payable to PACE Local 1-0403, in care of City of Brewer, 80 N. Main St., Brewer, ME 04412.

Lincoln area:

. Sen. Snowe’s staff will conduct constituent hours for workers to discuss the mill closures from 9:30 to 11 a.m. Monday, Feb. 9, council chambers, Lincoln town office building, 63 Main St.

. St. Mary’s Food Cupboard is open from 9 a.m. to noon Monday-Friday in the basement of the Ballard Hill Community Center. The food cupboard is open for displaced workers according to the first letter of their last names:

. Mondays ? names beginning with the letters A-F.

. Wednesdays ? names beginning with the letters G-L.

. Thursdays ? names beginning with the letters M-R.

. Fridays ? names beginning with the letters S-Z.

The food cupboard is still open 9 a.m.-noon Tuesdays for anyone else who needs food assistance. For information, call 794-3510 or 794-8148.

. Food assistance is available 7-11 a.m. Thursdays from the food pantry at the Howland United Methodist Church. For information, call 732-3589.

. Food assistance is available 10-11 a.m. Mondays from the food pantry at the Chester Baptist Church on Route 116. For information, call 794-2541.

. Fuel assistance is available by calling Pastor Tim Shaw at the Community Evangel Temple in Lincoln at 794-6181. Donations can be made out to “LP&P Fuel Assistance” in care of Machias Savings Bank, 29 Main St. Lincoln, ME 04457.

Key Phone Numbers:

. Displaced workers can obtain information about unemployment benefits by calling 1-800-593-7660.

. Displaced workers can obtain information about the MaineCare health care program by calling 1-800-432-7825.