About 27 hours of talks and an appearance in a Canadian bankruptcy court led to Fraser Papers and one of Canada’s largest unions making a tentative deal Wednesday to keep Fraser from having to close its paper mills in Madawaska and Edmundston, New Brunswick.
Though a Fraser official declined to divulge details, a Canadian judge granted Fraser a bankruptcy protection extension in Toronto when she heard that Fraser and the Communications, Energy and Paperworkers union had reached the tentative agreement.
The deal will allow Fraser to shed a significant portion of about $185 million in pension obligations it has with the union and form a new company temporarily called Newco, union officials said.
“It also avoids an orderly liquidation of [company] assets,” Bill Peterson, Fraser Papers’ human resources department director, said during a telephone interview from Toronto. “If we didn’t reach the agreement, that was the path we would have had no choice but to follow.”
If CEP’s national leaders had accepted Fraser’s original offer, pensioners — mostly men in their 70s — would have faced a 40 percent to 44 percent reduction in their pension checks, said Dave Coles, CEP’s national president. The tentative deal cuts substantially less, he said.
“We have agreed that Newco will put additional funding into the pension plan,” Coles said. “We haven’t got a resolve yet on what will happen to the plan on a go-forward basis, but it’s quite clear that the pensioners, retirees — and for those who are still working, their past service — [are] in jeopardy of taking some significant cuts.”
Fraser officials feared that the judge would have ended the company’s protection, forcing the liquidation. Coles agreed. CEP officials had speculated that if an agreement wasn’t reached, Fraser owner Brookfield Asset Management of Toronto still would have proceeded with Newco.
Peterson has said CEP must allow its contract to be amended to eliminate the union’s defined benefit pension plan and the obligation it carries and replace it with another type of pension plan if Fraser’s paper and pulp mills in Madawaska and Edmundston are to remain operational.
On Wednesday, Peterson and Coles declined to specify how or whether that actually would happen with the tentative agreement. Both cited a confidentiality agreement.
CEP Local 29 of Edmundston must take the union’s national office recommendation and vote to approve the new deal before it can be made final. No date has been set, Coles said.
“It’s going to hurt,” Coles said of the deal. “It is the lesser of a number of evils. The pensioners will lose less this way than if we had left it [Fraser] to go into insolvency. On the Canadian side, if the company had gone insolvent, it would have been quite bloody.”
A credit group of Brookfield, CIT-Canada and the New Brunswick provincial government won’t proceed with a proposed $180 million bailout unless the CEP contract is amended, Peterson has said.
The tentative agreement actually got Fraser another step closer to solvency. Once the deal was made, New Brunswick’s government dissolved letters of credit held by the region’s power company. That freed more than $20 million for Newco, Peterson said.