LINCOLN, Maine — Lincoln Paper and Tissue LLC filed for Chapter 11 bankruptcy protection on Monday, estimating it has between $10 million and $50 million in both debts and assets.
Company co-owner Keith Van Scotter said he expects the mill will be auctioned in 45 days, with a stalking horse bidder setting the price to beat. He said he did not know whether the potential buyers would operate or scrap the mill, the town’s second-largest taxpayer and third-largest employer.
“I’m disappointed that we had to take this route,” Van Scotter said. “We just did not have enough runway to finish the process that started with all the issues that came up with” a smelt water explosion in a chemical recovery boiler in November 2013.
The destruction of the boiler, considered too expensive to replace, resulted in the layoff of about 185 of the mill’s 400 workers, ended paper production at the facility and forced the mill to buy pulp from off-site sources — two key elements to the bankruptcy, said Duane Lugdon, a United Steelworkers Union staff representative.
Since 2012, the company also has been fighting allegations by the Federal Energy Regulatory Commission that it manipulated electricity markets. The company has denied the allegations.
Lugdon, whose union represents 132 of the mill’s approximately 179 workers, expressed hope that new ownership would keep the mill running.
“We are reasonably comfortable that the assets will be sold in the coming weeks and we are hopeful that, through reinvestment and changes in the physical plant, the Lincoln mill will get a new lease on life,” Lugdon said in a press release on Monday.
That decision could be complicated by a wave of recent additions to tissue production capacity in the United States, including new machines set to come online at St. Croix Tissue in Baileyville.
Esko Uutela, a tissue industry analyst who covers the sector for the forest product information and data firm RISI, wrote in late 2014 that supply growth outpacing demand could lead to shutdowns of some idle paper machines.
“There are some idle [paper machines] in the industry which will likely never be restarted and will be removed from the capacity base after three years of continuous downtime,” Uutela wrote.
To fund ongoing business expenses through the bankruptcy reorganization, Lincoln Paper said it has negotiated debtor-in-possession financing with Siena Lending of Stamford, Connecticut.
The company’s 179 employees include 15 who were recalled after a recent layoff, according to a notice it is required to give to employees.
The company has focused on producing tissue products, struggling against tough competition. It announced last month it was shutting down one of its three tissue-making machines, resulting in the layoff of 20-25 workers. LPT had finished about $10 million in improvements in March, including a new $6 million turbine and condenser system that made the mill an almost entirely self-sufficient electricity generator.
Gov. Paul LePage, in a written statement, blamed energy costs for the shutdown.
“We are now in partnership with four other New England states working to expand natural gas and hydropower into our region,” LePage said. “We must move forward with bold energy legislation, rather than stick with status quo policies that are adding costs to employers and hurting employees.”
Rep. Bruce Poliquin, R-Maine, also mentioned energy issues in his response to the news.
“My heart goes out to the employees of Lincoln Paper and Tissue, their families and the local community,” said Poliquin. “It’s in these hard times when Mainers come together to help their neighbors. As Maine’s Second District Congressman, I will continue to support legislation, such as the Natural Gas Pipeline Permitting Reform Act, that will help lower the cost of energy for Maine manufacturers.”
In its bankruptcy filing Monday, the company claimed between $10 million and $50 million in both assets and liabilities. Its largest unsecured creditor is energy company Constellation Newenergy, a Pennsylvania-based subsidiary of Exelon, to which the Lincoln mill owes just more than $1 million.
Eight of the company’s 20 largest unsecured creditors are based in Maine, and are owed more than $1.2 million. They include Sibley Transportation, owed $418,194, and Woodland Pulp in Baileyville, owed $373,541. The Lincoln mill also listed $309,845 in unsecured debt to H.C. Haynes Inc. of Winn, $131,563 to Bangor Gas Co. LLC and $114,225 to the state for permits. It owed another four unsecured creditors based in Maine a collective $274,331.
A Worker Adjustment and Retraining Notice, or WARN, has been provided to the company’s remaining employees, in case a buyer does not keep the mill producing paper.
The WARN Act requires employers to provide written notice of at least 60 calendar days in advance of possible plant closings and possible mass layoffs. An employer’s notice assures that assistance can be provided to affected workers, their families and the appropriate communities through the State Rapid Response Dislocated Worker Unit.
The company produces specialty tissue rolls for a variety of applications including party goods, food service, medical consumables and others.
Tissue World Magazine reported this month that recent capacity additions have held prices relatively stable despite annual demand growth between 1 percent and 2 percent, with nine in 10 of the largest producers adding capacity from 2008 to 2014.
“Whenever there is an ability to generate profits in any industry, there will be other entities that will invest and enter the market with a competing product. When that happens it results in an oversupply and all too many times a reduction in pricing so that the entire market then generates less revenue,” Lugdon said.
Lugdon said the boiler explosion, which caused the mill to seek outside sources for the pulp it used to make tissue, was among several reasons for the mill’s bankruptcy.
Lugdon said other challenges for the tissue industry include the spread of paper manufacturing to places like India and China, where “wages and benefits for the workers are severely depressed or nonexistent” and recent competition in the North American tissue market, where Lincoln Paper was a pioneer.
The Maine Pulp and Paper Association said despite the news Monday and despite news of recent shutdowns in East Millinocket, Bucksport and reductions in Rumford and Jay, “Maine’s pulp and paper manufacturers remain resilient.”
The association plans to host a conference in Bangor on Nov. 17, focused on “how Maine’s pulp and paper industry is actively transforming itself for the future.”
Town Council Chairman Steve Clay declined to comment on the bankruptcy announcement on Monday. Town Manager Ron Weatherbee was in a meeting and could not be immediately reached for comment.
The mill is the town’s third-largest employer and second-largest taxpayer, according to town records updated last month. It pays about $570,000 in property taxes annually, enough to account for 7 percent of the town’s tax base, town officials have said.
The town’s top taxpayer, Evergreen Wind Power, pays $1.3 million in taxes. Emera Maine, the town’s third-highest taxpayer, pays $153,155. Wal-Mart pays $72,136 and Gardner Land Co. pays $60,952 annually, officials have said.
RSU 67, the public school system serving Chester, Lincoln and Mattawamkeag, employs 310 people at its three schools and central office in Lincoln. Penobscot Valley Hospital employs 223 workers.
Lincoln Paper is ahead on its taxes because it is among 83 residents or businesses that are part of the town’s Tax Club, which makes monthly rather than twice-yearly payments, Town Clerk Amanda Woodard said.