Eastern buy hinges on loan negotiations

BANGOR – An unidentified group’s offer to purchase abandoned Eastern Pulp and Paper Corp. is worth “tens of millions of dollars” although a significant amount of that is not cash but new loans, including a request for $4 million from the state-supported Finance Authority of Maine.

The company’s offer is being circulated among negotiators, creditors and other interested parties under a confidentiality agreement. A source close to the loan negotiations who asked not to be identified said the deal is written in a way that “it’s unclear how much they’re going to pay” in actual cash for the mills in Lincoln and Brewer. But, the source said, more than $15 million is listed as new debt.

The source would not get into specific terms about the offer because of the confidentiality agreement, but agreed to disclose general terms that wouldn’t jeopardize negotiations or identify the prospective buyer.

The offer appears to be the only one being given serious consideration to rescue the mills that were ordered abandoned by a federal bankruptcy judge on March 12. Eastern Pulp shut down operations on Jan. 16, leaving 750 without jobs.

Gov. John Baldacci said he received the terms of the deal Monday evening from “the potential buyers and a creditor,” but he would not name the members of the partnership. In bankruptcy court documents filed Monday evening, lender ING Group acknowledged that it is the creditor working with the prospective buyers.

It is possible that ING Group would own the company and let other paper producers manage the mills. ING Group is based in Amsterdam, Netherlands, but has offices throughout the United States. It manages $450 billion in assets worldwide.

There is a possibility ING Group can take ownership of businesses in accordance with European laws. American laws do not permit lenders to own companies, according to a local banker.

ING Group already is owed about $27 million by Eastern Pulp and is fourth in a line of secured creditors for payment. Under the proposed offer circulated Tuesday, which state officials said is still being worked on, ING Group’s financial participation in the purchase deal, along with that of any other new lender, would be given higher priority on loan payments over Eastern’s existing secured creditors.

The secured creditors that might be stepped over include former prospective buyer Paper Acquisition Corp. of Topsfield, Mass., which loaned $90,000 to maintain the mills this month while it tried to negotiate a deal. The other secured creditors are Corsair Special Situations Fund LP of New York City, which loaned Eastern Pulp about $3 million, and Congress Financial Corp. of New York City, which is owed about $40 million.

For the state’s part, the prospective buyer wants state officials to continue paying to keep the mills maintained until the sale is closed, a cost estimated to be $240,000 a week, and to secure the $4 million FAME loan, according to the source. The suitor also wants an agreement with the Department of Environmental Protection on how to handle environmental cleanup issues that may have been left from the previous owners.

Today, representatives from Baldacci’s office, the Department of Economic and Community Development, and DEP will conduct a conference call with the prospective buyer to hammer out terms of the deal that so far are not resolved, said Lee Umphrey, the governor’s spokesman. On Thursday or Friday, the “president of the new company” will be at the State House to sign the deal, he said.

Umphrey would not confirm any of the details of the loan, but called Tuesday’s negotiations “productive.”

The state wants to sell Eastern Pulp through the U.S. Bankruptcy Court, but the easiest way to do that was for an interested party such as a creditor to file a request that U.S. Bankruptcy Chief Judge James B. Haines reconsider his March 12 abandonment order. ING Group filed that request Monday evening, just in time to beat a midnight deadline when the judge’s order would have become final and untouchable by appeal.

ING Group still needs to request a hearing on its reconsideration request, and that hasn’t been done yet.

According to bankruptcy attorneys, for Haines to seriously reconsider his abandonment order, the judge will have to be shown a bona fide offer from a well-capitalized buyer who can close a sale almost immediately. The offer would have to satisfy Eastern Pulp’s secured creditors and include money to keep the mills maintained until the sale is closed.

Umphrey said Haines has been consulted on the offer by Baldacci’s legal counsel, Kurt Adams.

“The indications that I got from Kurt Adams is that the bankruptcy court is pleased with where we’re at,” Umphrey said.