Eastern bidder, DEP to meet today

PORTLAND – The sale of bankrupt Eastern Pulp and Paper Corp. now hinges on a private meeting this morning between the state Department of Environmental Protection and the prospective buyer, Paper Acquisition Corp. of Topsfield, Mass.

Paper Acquisition set a self-imposed deadline of today to come to an agreement on how to clean up or contain environmental contamination at Eastern Pulp’s two mills in Lincoln and Brewer. The deadline is spelled out in its Feb. 25 “letter of intent” to purchase the mills.

If no deal is reached, Paper Acquisition could decide not to lend any more money to keep the mills in “warm stasis,” which is a process to protect the machinery from deterioration, and could rescind its $8.5 million offer, according to Fred Bopp III, a Portland attorney representing Eastern Pulp’s trustee.

Whether that actually will happen, though, is doubtful, Bopp said. Last week, Paper Acquisition had a similar deadline in place. It waived the condition and lent $90,000 to keep the mills warm through Monday night.

“We hope they’ll do it again,” Bopp said. “He’s got to feel confident that progress is being made and then he’ll loan more money.”

As part of its letter of intent to buy Eastern Pulp, Paper Acquisition agreed to lend up to $1 million, which is payable in installments, to keep the mills warm until the sale is closed, which is tentatively set for March 24.

Jim Dusch, a DEP compliance enforcement officer, said Monday that he’s been notified by Paper Acquisition Corp.’s attorney that if terms on how to deal with a possible environmental mess aren’t worked out by today, “they’re not going to fund” warm stasis after today.

“They’re not giving up dime one until they work out the environmental component,” Dusch said. “They could withhold the money if the environmental part isn’t worked out.”

At issue is whether the previous owners or the new owners are responsible for cleaning up any environmental contamination or responding to any potential noncompliance concerns.

Dusch said that according to state law, and even in federal jurisdictions, any company that has purchased a possible environmentally hazardous property must open its wallet to pay for any cleanup, even if the mess was the result of previous owner’s neglect.

Paper Acquisition initially wanted blanket liability from any cleanup costs, Dusch said, and the state could not give it to the company. Paper Acquisition must evaluate its financial exposure before taking ownership of the mills or else it could be stuck with a multimillion-dollar bill.

“They have to evaluate the risk because once they buy it, they’ve bought it,” he said.

Paper Acquisition attorney John Sigel was unavailable for comment Monday.

Today, Paper Acquisition and DEP will meet in Portland to go over a list that includes just about every inch of property at both mills. DEP will tell Paper Acquisition whether there ever was a problem at the itemized property, and if it was cleaned up or could pose a threat in the future. Dusch said Paper Acquisition then will decide whether to continue with the sale.

The scheduling of the meeting is considered progress, after two days of negotiations last week failed to end in an agreement. On Monday, DEP and another attorney representing Paper Acquisition spent three hours on the telephone negotiating the prospective buyer’s risk before settling on meeting today.

“I think we’re in agreement on general parameters,” Dusch said. “However, the devil’s in the details.”

An agreement with DEP is not the only condition that Paper Acquisition wants met before it lends any more money to keep the mills warm. The other is coming to terms with the mills’ PACE union.

But so far, Paper Acquisition has not participated in sit-down negotiations with the unions, said Steve Corriveau, president of PACE 1-0396 at the Lincoln mill.

It’s likely that condition in the letter of intent will be waived today, Bopp said.

“We kicked the tires around last week, but we haven’t come to any quote agreement,” he said. “I don’t think we’re going to have any problem. But we’ll have to wait to see the bottom line.”

In bankruptcy court, Paper Acquisition cannot formally be characterized as the only company pursuing Eastern Pulp. Paper Acquisition’s letter of intent set up the company as the “stalking horse bidder” for a court-sponsored auction on March 17, and other interested buyers must better PAC’s offer in order to be the successful bidder at the auction.

As the stalking horse bidder, Paper Acquisition was able to set the financial terms that other interested buyers must meet to outbid it, plus ask for a $400,000 deal “breakup fee” if it is successfully outbid.

Besides trying to reach agreements with DEP and the unions, Paper Aquisition faced a challenge Monday from one of Eastern Pulp’s major creditors.

Corsair Special Situations Fund LP of New York City wanted an emergency hearing to find out whether financial terms had been reached with several of Eastern Pulp’s suppliers on past-due balances. The suppliers would be paid first from the $8.5 million purchase price and could dip into what Corsair would be paid on its $3.3 million balance.

But U.S. Bankruptcy Chief Judge James B. Haines told Corsair that its request didn’t rise to the level of an emergency and wasn’t worth risking holding up the sale. Instead, Haines said, Corsair, Bopp and other interested parties could discuss the suppliers’ bills outside the courtroom. If help was needed, Haines said he would pitch in to settle any differences.