Judge to rule on Eastern Pulp’s fate today

BANGOR – At least nine creditors or interested groups are opposed in some way to the $23.72 million sale of abandoned Eastern Pulp and Paper Corp. to First Paper Holding Corp. LLC even though a federal bankruptcy judge last week strongly urged them to work out their differences by this morning.

U.S. Bankruptcy Chief Judge James B. Haines will rule today on whether a sale to First Paper Holding can proceed to closing within the next couple of weeks. A hearing on whether Haines should reverse his March 12 abandonment order and allow the sale begins at 9 a.m. at U.S. Bankruptcy Court in Portland.

Eastern Pulp, bankrupt since September 2000, shut down operations on Jan. 16, leaving 750 people without a job in Lincoln, Brewer and its headquarters in Amherst, Mass. First Paper wants to reopen the Lincoln mill, employing about 350 people.

Last week, Haines approved letting today’s hearing occur, but only after he told the trustee for Eastern Pulp’s bankrupt estate and attorneys for the buyer, creditors and lenders that he might turn down any purchase agreement that diminishes the financial repayment rights of creditors.

At the time, Haines told his audience of more than 25 attorneys, “We can either put it all together between now and next Friday or get here next Friday and put it together then or blow it up.”

But, Haines warned, today would be the last chance to sell the mills through the bankruptcy court process.

However, an attorney for another prospective buyer will be in court today waiting for Haines to approve a sale so that he then can challenge First Paper’s deal. Attorney Steve Morrell of Brunswick said Thursday that he would not identify the interested buyer, but that he might argue that First Paper is nowhere near being close to finalizing a sale.

Morrell said both First Paper’s and his client’s proposals need some work, and that would take some additional time that the court should give both prospective buyers. Then, Haines could decide which offer is in the best interest of Eastern Pulp’s bankrupt estate, primarily its creditors.

“Both parties try to pull their deal together and the best man wins,” Morrell said.

On Thursday afternoon, Morrell said the second prospective buyer had “informal commitments for financing that we’re trying to finalize” before today’s court hearing to show Haines that the offer is a serious one.

Morrell’s possible challenge is not the only one that First Paper will encounter today. Among the numerous objections filed Thursday evening is one from Paper Acquisition Corp. LLC of Massachusetts, which until March 12 was Eastern Pulp’s sole prospective buyer.

Paper Acquisition wants to be paid the $90,000 it loaned Eastern Pulp’s trustee, Bangor attorney Gary Growe, to keep the paper company’s mills in Lincoln and Brewer warm while it completed its purchase, plus thousands of dollars in attorneys’ fees and expenses. Also, Paper Acquisition wants $400,000 in what’s called a deal breakup fee to be paid by First Paper, something First Paper is unwilling to do.

Paper Acquisition claims in court documents that the latest prospective buyer is outbidding its $8.5 million offer that was accepted by the bankruptcy court last month.

Growe, however, counters that Paper Acquisition withdrew its offer during a March 12 court hearing because it could not finalize a number of conditions that were essential for closing the deal. Paper Acquisition, though, said it did not withdraw its offer, it just asked that the dates to meet certain conditions be changed.

But with no money left to keep the mills warm, the trustee asked Haines to abandon the properties, and the judge agreed.

Today’s court proceeding starts with a scheduled half-day hearing on whether Paper Acquisition is entitled to reimbursement and the breakup fee. If the judge agrees, First Paper likely will withdraw its offer.

The Finance Authority of Maine, a quasi-state agency funded with state money, also is challenging First Paper’s offer, stating in court documents that it loaned $971,000 to keep Eastern Pulp’s mills warm while a buyer was sought. FAME said it isn’t opposed to the sale per se, but it wants its money and it does not want its repayment rights trumped by junior creditors as outlined in First Paper’s purchase agreement.

“FAME has not, and does not consent to the proposed sale as currently structured, and demands that any sale of the assets be approved only with adequate protection of FAME’s interest in the assets as required by [law],” wrote Christopher Roney, FAME deputy counsel, in court documents. “In order for the sale motion to be granted under the only applicable provision of [bankruptcy law], the court must find that the trustee has exercised sound business judgment, that the sale is fair and reasonable and the proposed sale is in the best interest of the estate. At the current price, there has been no showing that the proposed sale provides any interest to the estate, let alone that the sale is in its best interest,” Roney continued.