With its emergence from bankruptcy protection imminent, Fraser Papers expects to launch its new company shortly and plans for it to be among the world’s best papermakers, one of its top executives said Thursday.
Temporarily called Newco, the new company will emerge from the debris of Fraser with a strong balance sheet, modest debt, an already-profitable specialty papers mill in Madawaska and a solid backlog of orders, President and Chief Operating Officer Jeffrey Dutton said.
The Madawaska operation “is not where it needs to be, but it’s profitable,” Dutton said in a telephone interview. “We have a ways to go, but we have made good progress and we think it’s well positioned.”
A tentative agreement between Fraser and the Communications, Energy and Paperworkers union Wednesday will allow Fraser to shed much of about $185 million in pension obligations at its Canadian properties to form the new company. Also, New Brunswick’s government dissolved credit letters held by the region’s public utility to free more than $20 million for Newco.
Those deals and a Madawaska United Steelworkers union agreement, which freed Fraser from $6 million in annual pension liabilities and included an immediate 8.5 percent wage cut, saved as many as 2,000 jobs in the St. John Valley and New Brunswick.
The only potential hurdle remaining to Newco’s birth is approval of the tentative deal by the CEP’s Edmundston chapter. That vote is required by March 10, Dutton said. A positive outcome is not guaranteed, but union members are expected to follow their national leaders’ endorsement.
Fraser owns the Madawaska specialty papers mill and a pulp mill in Edmundston, New Brunswick, plus lumber mills in Ashland and Masardis, Maine, and Juniper and Plaster Rock, New Brunswick; a pulp mill in Thurso, Quebec; and a paper mill in Gorham, N.H. Fraser also manages paper mills in Millinocket and East Milli-nocket, Maine, for parent company Brookfield Asset Management of Toronto.
CEP national President Dave Coles backed the deal with deep reluctance. Instead of taking an initial offer that would have cut pensions by as much as 44 percent, the union got a smaller cut and continued pension contributions from Newco, Coles said.
“It’s a very sad situation when corporations that have no lack of funds and resources like Brookfield can escape their responsibility to pensioners and workers,” Coles said. “All they have done is shed their pension liabilities and that’s immoral. It should be illegal and apparently it’s not.”
Though it approved the new deal, the union will continue to fight for the pensioners with the New Brunswick and national Canadian governments, Coles said.
A Canadian judge approved the deal in bankruptcy court in Toronto on Wednesday. Brookfield made $649 million in profits in 2008, has more than $100 billion in assets and netted $112 million in the third quarter of 2009 alone. Fourth-quarter and 2009 totals are not available.
Fraser’s Ashland, Masardis, Thurso and Gorham mills are up for sale. The Ashland, Juniper and Thurso mills are closed, but some could reopen if the housing market rebounds, Dutton said.
Fraser never wanted to hurt retirees or workers, he said. Already enduring an international economic crisis and unprecedented worldwide competition, the company needed to jettison outmoded contracts that created excessively high labor costs and impaired its ability to compete, Dutton said.
“The market conditions on the stock market forced pension plans for many companies to go upside down,” Dutton said. “We are dealing with contractual issues with our unions that the rest of the state [of Maine] dealt with in the 1980s. We had to address issues that kept us from being competitive in order to be modern, and we didn’t have the efficiencies in our contracts that our competition has in state and out of state.”
The pension cuts, new union contracts, the utility’s forgiving $20 million in debt — which Dutton called “huge” — and new wood-supply contracts all will keep Fraser going until Newco’s birth, Dutton said.
“We have been able to hang on to most of them [customers] and actually gain a few in the process,” he said. “We have some major reinvestments planned and a host of new products with very, very high potential that might emerge within two to four years.”