December 12, 2017
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Mill says it has major buyer lined up for tissue paper, taxpayer help would support 62 jobs

By Darren Fishell, BDN Staff
Nick Sambides Jr. | BDN
Nick Sambides Jr. | BDN
Catalyst Paper Corp. wants to use two taxpayer-backed incentive programs to attract investors in its Rumford mill, where it wants to add a machine to make tissue paper. The company said it's part of a “transformation strategy” that so far has involved reducing its costs by about 15 percent.

Catalyst Paper Corp. wants Maine taxpayers to sweeten a $56-million investment in a tissue-making machine at its Rumford mill, as part of a company overhaul plan of untold cost that it calls Project Falcon.

The company said the project would allow it to take advantage of a growing market for the tissue paper, and even has a “major paper merchant” lined up to buy all that the new machine can produce. Catalyst told state investors the tissue paper enterprise will be able to support 62 full-time jobs, worth $79 million in annual payroll and benefits.

The Finance Authority of Maine on Thursday cleared the way for one part of Catalyst’s financing plan using a state program meant to entice investment in economically troubled areas.

The proposed deal using the state’s New Markets Capital Investment program could deliver about $12.7 million in state tax credits or taxpayer cash to investors in exchange for investing $31 million in the purchase and installation of a tissue paper machine at the Rumford mill, according to the project application.

The company applied separately for the maximum loan amount — $25 million — through finance authority’s Major Business Expansion program. The finance authority will consider that application at a later meeting. Catalyst said that money is also needed to get the project in motion.

Company officials said the tissue machine will steady the future of the mill that employs about 640 people making pulp and coated paper. The market for that type of paper has been in steep decline, company officials said, and they need to expand their offerings to survive.

“We need to shift out of that,” Randy Chicoine, the mill’s general manager, told the finance authority board Thursday.

Chicoine said the deal is a top priority for Catalyst, the Richmond, British Columbia-based company that purchased the Rumford mill in 2015 as part of Verso Paper Corp.’s antitrust settlement with federal regulators. Catalyst last year reached terms to be purchased by the Indian firm Kejriwal Group International, but its shareholders nixed the deal in December in favor of a different deal to infuse new capital into the company.

Since then, Chicoine said the mill began work on a “transformation strategy” that led to cutting its costs by about 15 percent. The next phase involves getting the tissue machine up and running by 2020.

By that year, an economic impact study commissioned by the company estimates the new machine would support 62 full-time jobs, with 25 directly involved in producing tissue products and another 37 in support functions for that new line of business.

The company said the 25 tissue jobs will pay an average of $31 per hour, with benefits. The impact study projects the mill would spend almost $79 million on payroll and benefits in 2020.

[Read more about the economic impact study here]

While other paper markets decline, the study said the North American market for tissue paper continues to grow at a rate of 1.4 percent annually, which Chicoine said is enough to support the annual addition of two to three machines of the size it’s proposing in Rumford.

Chicoine said the addition would also help Catalyst solve the problem of what to do with its excess wood pulp, which he said is not profitable to sell alone.

In a project summary submitted to the finance authority, Catalyst said it already has an agreement “with a major paper merchant for all production from the new machine.”

Catalyst plans to put in $13.9 million of its own money into the project, to help boost tax credits to other investors and further entice them to the deal.

Ghost of deals past

Board Member Jay Violette clarified Thursday that Catalyst’s deal doesn’t involve a financial arrangement called a “one-day loan.”

That clarification referred to a kind of deal banned in the wake of a 2015 Maine Sunday Telegram investigation that documented the controversial flow of money through state New Markets Capital Investment deals, notably Cate Street Capital’s failed restart of the Great Northern Paper mill.

In the Cate Street deal, investors put in $40 million that qualified, but none of that money ultimately was put into capital improvements at the mill. Instead, $28.1 million was returned to investors the same day and $10.5 million was used to pay off some of the mill’s old debts, which concerned finance authority staff, who called the deal ” a paper transaction” in order to qualify for the credits.

The program now bans many of the practices used in that specific deal. The finance authority prohibits one-day loans, and states that no more than 5 percent of the investment can go toward refinancing old debt, buying an existing company, paying transaction fees or giving equity to owners.

Kris Eimicke, an attorney who worked on the Cate Street deal and who is representing Catalyst, said the program’s imbroglio has made some shy in applying.

“They say that we don’t want to be involved because we don’t want to be on the front of the paper just like GNP was,” Eimicke said. “It’s really difficult when you talk to good nonprofits that have good stories and are trying to raise money for important projects… and they don’t want to get involved because of the consequence of simply applying for the program.”

Eimicke defended the current program, point to a March report from the Office of Program Evaluation and Government Accountability as proof of the program’s value.

Overall, the report estimated the projects supported by the program would boost net state revenues $15.8 million from 2013 to 2021. That’s despite the credit being refundable, which means investors with no Maine tax liability get cash payouts instead.

The report featured a special section on the GNP deal and what led to the mill’s downfall, concluding that it “is an example of the potential risk inherent to the state in this program.”

The program intends to encourage investment in “economically distressed areas” and to make the state “more competitive in the attraction of investment capital,” according to the law that created the program.

Project Falcon

The deal proposed by Catalyst subsidiary Pacific Falcon Corp. involves seven “community development entities” that have $4.6 million each in tax credits under the state’s new markets program.

Those entities also have federal tax credits to grant to investors, providing an additional incentive. In total, the investors will put in about $32.5 million that, after fees, will result in $31 million getting to Rumford’s Project Falcon.

The economic impact study granted the company access to that much money. Program changes made to accommodate the GNP project allowed community development entities to use up to $40 million in tax credits for any one manufacturing project, if it created or retained at least 200 jobs. Program rules set the cap for all other deals at $10 million.

The study, done by economist Chuck Lawton, estimated the project would help sustain 1,942 jobs in and around the mill.

Two of the tax credit holders, Stonehenge Community Development and Enhanced Capital, were involved in the GNP deal and lobbied for creation of the program in Maine and in other states. Another, Cityscape Capital Group, was involved in Cate Street’s related wood pellet project proposed by Thermogen Industries.

Those groups serve as intermediaries between investors like U.S. Bancorp and companies ultimately receiving the investments. Application documents anticipate U.S. Bancorp will provide the equity investment and, in exchange, receive the tax credits that flow from the deal.

The other entities include: Urban America, which says it focuses primarily on real estate investments in urban areas; CBO Financial, which focuses on state and federal new markets investment; Community Impact Fund; and CEI Capital Management, according to application documents.

The deal’s complexity prompted board member and Maine State Treasurer Terry Hayes to abstain from the vote Thursday, but she said that’s not for opposition to the project.

“I wanted to feel confident when I voted, but I didn’t,” Hayes said. “I didn’t feel as though I could have explained my support.”

Some of that complexity is inherent in the federal and state program, according to the government oversight report. For instance, that report’s “simplified” diagram of a typical new markets deal involves six entities other than the state.

The Rumford deal involves 13 entities other than the state and the ultimate recipient of the funds, Pacific Falcon.

The vote Thursday cleared the way for that complicated flow of money to take place, but company officials said that depends also on getting a $25 million taxpayer-backed loan. The company expects to present that application to the finance authority board at a later meeting.

Chicoine said the final new markets deal still requires approval from Catalyst’s board of directors, too, but he did not expect that would pose a problem.

“This is the number one project in Catalyst,” Chicoine said. “It’s a matter of pulling the pieces together.”

 


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