Eastern lenders ponder cost of heating mills Facilities to be warm till Sunday

BANGOR – A long-running dispute between at least two lenders of bankrupt Eastern Pulp and Paper Corp. continues to threaten the papermaker’s possible future operations even after its two mills already have been shut down.

This time, the dispute over which lender has first rights to funds received from any sale of mill assets could financially hurt the lenders themselves.

Recently, the lenders, which include Congress Financial Corp. of New York City and ING Group-Spring Street of Phoenix, agreed to keep Eastern Pulp’s two closed mills warm through this weekend to protect the machinery from exposure to freezing cold temperatures. But as of Friday evening, the lenders had not decided whether to continue paying for heat and other basic-need expenses starting Monday, according to Kurt Adams, legal counsel for Gov. John Baldacci.

If the mills go cold permanently at the beginning of the week, the potential is great for equipment and pipe breakage, as well as environmental problems, Adams said.

Damaged pulp and paper equipment may not be attractive to a prospective buyer because of increased startup costs to repair it in order to return the mills to operation. Equipment buyers also do not consider damaged mill equipment a wise investment if the mills are turned over to the lenders for a piecemeal sale.

The loss in value could cost Congress and ING millions of dollars that could come their way to pay off nearly $60 million in loans they have extended to Eastern.

“The lenders are still doing the same dance they were doing in Chapter 11,” Adams said. “This dance between the lenders as to who has priority first is self-defeating.”

On Wednesday, Eastern Pulp was converted to Chapter 7 liquidation status. It came after the company informed U.S. Bankruptcy Judge James B. Haines that Congress could not commit to funding its share of a $3.8 million emergency loan to fund the papermaker’s operations for 13 weeks. The Finance Authority of Maine was to chip in $1 million, while Congress would lend $2.8 million.

Although Congress’ name would be on the loan, the $2.8 million was to be funded by Congress and ING Group-Spring Street, according to attorneys close to the negotiations. Almost a month of feuding ensued between the lenders over who would be repaid first, before they reached an impasse and headed to court Wednesday.

But Haines and attorneys for suppliers Wednesday questioned whether the loan actually covered every expense needed to run the mills. Congress told Eastern that it couldn’t provide any more money, and a couple of hours later the company asked Haines that Eastern’s bankruptcy status be changed to Chapter 7, or liquidation. Haines ordered the conversion.

In a matter of minutes, 750 jobs at Eastern Pulp’s two mills and its Amherst, Mass., headquarters were eliminated. Eastern, which has been under bankruptcy protection since September 2000, owned Lincoln Pulp and Paper Co. in Lincoln and Eastern Fine Paper Co. in Brewer.

Although the threat of a cold shutdown is real, Adams said, he doesn’t believe the situation is especially dire. He said the lenders now are negotiating with Bangor attorney Gary Growe, who is the court-appointed trustee. Growe has more legal options to secure the extended funding than a company that remains in operation would have.

Growe is expected to continue negotiations with the lenders this weekend, Adams said.

In the meantime, talks with at least five unidentified buyers continued Friday. Adams said he could not disclose how the suitors’ review of the company was progressing.

Employees on Friday were continuing to proceed with their attempts to purchase the company. Michigan attorney Deborah Groban Olson, who specializes in employee buyouts, will be in the Lincoln and Brewer areas this weekend, meeting with employees and union leaders.

Olson said she was having difficulty receiving financial documents regarding Eastern Pulp on Friday afternoon, but that once she read the reports she would have a better idea of how to structure an employee buyout plan. She also said she has talked to Growe as well as numerous state agencies and Lincoln and Brewer officials, and described those talks as “an absolute outpouring of support and cooperation.”

Employees would pay for the mills either by securing private funds from interested capital groups or by becoming involved in a joint deal with other prospective buyers, Olson said.

For workers, though, their primary focus Friday was trying to navigate the maze of health care options presented at meetings sponsored by the state Department of Labor. Many of the workers found out they wouldn’t be eligible for state-sponsored health care plans until they exhausted the money they have saved in 401(k) plans.

The workers will be receiving up to $291 per week or $1,251 a month, before taxes, in unemployment benefits, and health care costs could eat up most of that.

“Who can pay for this [health insurance]?” asked William Cleary, who worked at Eastern Fine for 26 years. “You’ve got oil to pay for, truck insurance to pay for, and now health insurance to pay for. How are you going to do that on $291 a week? I feel it deep down. I wake up at night and wonder, ‘What am I going to do now?’ It’s awful.”