PORTLAND, Maine — The Lincoln Paper and Tissue mill will continue operating under a $2.3 million extension of its credit line and has lined up an initial bidder for a sale it hopes to close by the end of November, according to the mill’s CEO and court documents.
A bankruptcy judge on Tuesday approved the extended credit line, which mill CEO Keith Van Scotter said means it’s business as usual for employees, customers and vendors as the specialty tissue mill moves toward an auction.
“Business will be conducted as usual, under supervision of the [bankruptcy] court,” Van Scotter said in a phone interview Wednesday morning.
The mill filed for Chapter 11 bankruptcy protection Monday.
The company won approval for other motions as well, including its ability to continue using its existing bank accounts to make payroll and other short-term expenses. The company said in court filings it plans to issue regular paychecks Friday, Oct. 9, for the period Sept. 29 to Oct. 5.
The mill employs about 174 people, according to its bankruptcy filing, with 128 hourly employees and 46 salaried.
To continue to operate until the mill can be put up for auction to a new buyer, the company will use the $2.3 million credit extension from Siena Lending Group of Stamford, Connecticut.
Other secured creditors, including the Finance Authority of Maine, had filed objections to extending the credit line because it broadened first-in-line lender Siena’s claim to mill assets.
Van Scotter said some of those issues were resolved Wednesday, and the court’s decision to allow the mill to continue operating ultimately will return more to its creditors, secured and unsecured.
“If you have a shutdown mill, it generally reduces the value and makes it more likely that the mill doesn’t run again,” Van Scotter said.
The debtor-in-possession loan from Siena — allowing Lincoln, the debtor, to keep operating the mill — will face review by the court and other parties along the way, with an interim hearing scheduled for Oct. 9 to review the terms of that operating agreement.
Van Scotter said he expects the court will extend approval of the loan agreement with Siena, which he said would support the mill’s operations through to a sale.
Van Scotter said he could not reveal the identity of the stalking horse bidder, who will set the price to beat for buying the company Van Scotter and John Wissman bought in 2004 from Eastern Pulp and Paper Co. for $23.7 million. The company since has invested millions in equipment.
A boiler explosion in 2013 took some power generation equipment offline and made it unable to produce pulp on site, but the mill got piped natural gas last year and in March completed about $10 million in improvements that made it a nearly self-sufficient energy generator.
“We’ve got good assets and good people and some challenges,” Van Scotter said. “I think a smart strategic player could get a lot of value by investing in this business.”
Asked how much money would be required from a new buyer, Van Scotter said that “is a more complicated conversation.”
Lloyd Irland, a former state economist who runs a consulting firm focused on forest products, said the mill’s ability to serve a specific niche in a growing market for tissue paper could be a saving grace.
“Often smaller mills can function and keep swimming with the sharks when they serve a small market niche,” Irland said.
The Lincoln mill focuses on specialty tissue applications, used for party goods, napkins, towels, table covers and other uses. Van Scotter said supply in that market has not been growing at the rate of commodity white tissue, used in paper towels and bathroom tissue.
“Not a lot of people do what we do, and this mill does have a niche,” Van Scotter said.
The mill’s debtor-in-possession agreement set a tentative timeline for its next major steps toward finding a buyer, with auction procedures in place by Oct. 13, approval of a sale by Nov. 12 and closing on the sale by Nov. 27.
Van Scotter said he expects to have “an active auction” for the mill and its assets.