MADAWASKA, Maine — Having just completed a painful contract negotiation with its largest American union, Fraser Papers Inc. now will work to heal divisions within the local paper mill and to finish the company’s emergence from bankruptcy protection, its chief contract negotiator said Tuesday.
“We are pleased that the agreement is ratified,” said Bill Peterson, Fraser’s human resources director. “We know it was difficult for people and it is one giant step that had to occur in order for [a new company] to be born, or to emerge into existence.
“We are obviously closer to the finish line today than we were yesterday,” Peterson said Tuesday.
About 65 percent of the 460 members of United Steelworkers Locals 291, 365 and 1247 approved a new three-year deal Monday that put into effect an immediate 8.5 percent wage cut. Union votes on Nov. 22 and Dec. 30 had rejected the contract overwhelmingly.
Management declared last week that the new deal is among three conditions the re-formed, post-bankruptcy Fraser company, temporarily called Newco, must meet to prevent the closing and scrapping of the 680-worker mill and its sister pulp mill across the St. John River in Edmundston, New Brunswick.
A credit group of Fraser owner Brookfield Asset Management of Toronto, CIT-Canada and the New Brunswick provincial government won’t proceed with a proposed $180 million bailout of Fraser without the contract. The contract had been negotiated intermittently since August.
Fraser sought bankruptcy protection in Canadian and U.S. courts in June. The St. John Valley’s largest single employer and the town’s largest taxpayer and employer, the Fraser mill manufactures coated and uncoated freesheet papers and hybrid and uncoated groundwood papers.
Fraser Chief Executive Officer Peter Gordon thanked the union for helping keep the company alive.
“The agreement reached last night represents another step forward toward a successful but difficult restructuring of our specialty papers business,” Gordon said in a statement Tuesday.
“We want to recognize our employees, who have recommitted to our business through this contract, as well as those who were directly involved in reaching this agreement in challenging circumstances. We also want to express appreciation to our customers and suppliers for their continued support,” he added.
The new union contract, and its $4 million in concessions, comes with a restructuring plan that cuts another $7.5 million in salaried positions in Toronto, company officials have said. Management also has said that the mill’s executive and salaried positions have not received wage increases in three years.
As part of the contract, the union allowed its defined benefit pension plan to lapse now, instead of in 2013, as the union originally had agreed in 2007, and to allow Fraser to walk away from $6 million in annual pension liability — another key concession to the company’s rebirth as Newco, union officials said.
Fraser’s next step is to meet the other two conditions needed to make the new company viable. The first is to get the Communications, Energy and Paperworkers — or CEP — Union Local 29 in Edmundston to allow Fraser to eliminate its defined benefit pension from its contract.
This would relieve Fraser of about $180 million to $185 million in potential debt, Peterson said. The Edmundston mill provides pulp and energy to the Madawaska mill.
The sale of Fraser to another investor crashed when the investor saw the company’s pension liabilities, said Peterson. “How do you assume ownership of a company that you paid $185 million for,” he said, “when it carries a potential debt of about $180 million?”
CEP is fighting the restructuring. A small group of union members and pensioners occupied the Toronto and Gatineau, Quebec, offices of Brookfield Asset Management last month to protest attempts to tamper with the pension.
Gaitan Minard, secretary-treasurer of the national CEP, called Brookfield Asset’s posturing “shameful.
“As the controlling shareholder of Fraser Papers, with $649 million in profits in 2008, Brookfield Asset Management is planning to purchase Fraser Papers,” Minard said in a statement last month. “However, it is using the bankruptcy process to get out of its pension obligations.”
Minard could not be reached for comment on Tuesday.
The third condition Fraser must meet is to renegotiate letters of credit with its primary power supplier, NB Power, that encumber about half the company’s available cash, Peterson said.
Fraser’s discussions with the Edmundston union and with NB Power have been going on for months but have not yet been resolved.
Peterson said he regretted the fact that the new United Steelworkers contract required concessions from the union’s workers in Madawaska.
“We got what we needed to continue to run the business. That’s very different from saying that we got what we wanted,” he said. “When the labor agreement is resolved, we need to figure out how we can heal ourselves.
“There are a lot of people whose feelings have been hurt and faith in each side has been diminished,” he added. “In the long run, the only people who can put this place back together are the people who work here.”