February 21, 2020
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CEO: After explosion, Lincoln mill lost cash, competitive edge

Nick Sambides Jr. | BDN
Nick Sambides Jr. | BDN
Lincoln Paper and Tissue LLC as seen on Monday.

PORTLAND, Maine — With an uncertain future ahead of the Lincoln Paper and Tissue mill, company co-owner Keith Van Scotter laid out its past and the circumstances that led to its bankruptcy in written court testimony filed on Monday.

It starts with the November 2013 boiler explosion. After that, Van Scotter wrote, the mill started leaking cash.

The explosion and subsequent loss of a contract to a competitor in Indonesia led to about 185 layoffs about one month later.

“Lincoln did not believe that insurance proceeds were sufficient to rebuild the boiler and maintain its customer base,” Van Scotter wrote in the filing Monday.

The company then shut down the boiler, associated electricity generation equipment and two uncoated freesheet paper machines, which can produce office paper and other uncoated grades.

The mill had produced all of its own pulp to feed its paper machines before the explosion. The loss took away a key edge it had in the market, Van Scotter wrote.

The reconfiguration prompted the company to craft a new strategy to capture a share of the tissue market, Van Scotter wrote, requiring it to compete on price through 2014 in an already crowded area.

Van Scotter told the Bangor Daily News in early 2014 that the market was showing signs of weakness.

“I won’t say it’s dire, but I don’t like the signs I’m seeing. When you have way more capacity than the market can absorb, something is going to give. I think we’re going to see a challenging market this year,” he said in a February 2014 interview.

During that time, he wrote, the company also faced increasing energy costs while having “to fund significant labor obligations” under a union contract.

“All told, the combination of these issues caused cash flow problems that have greatly hindered Lincoln’s ability to operate as a going concern,” he wrote.

The tough market conditions led it to seek an extension on its line of credit with Siena Lending Group of Stamford, Connecticut, getting a credit line of up to $6 million in December 2014.

At the time of the bankruptcy filing, it owed $4.3 million on that credit line and sought permission to take on $2.3 million more from Siena to operate until a buyer is identified.

Van Scotter wrote the company began to default on some of its obligations this year, getting a default notice from lender Siena on Aug. 28 and having liens placed against it by two creditors for more than $1.4 million.

The company had defaulted on its credit line, with liens in hand, and still faced a lawsuit from the Federal Energy Regulatory Commission alleging electricity market manipulation.

Van Scotter wrote the company’s officers, board members and advisers concluded the company had little chance of changing course without relief from some of its debts through a Chapter 11 bankruptcy.

In a related motion filed with the bankruptcy court on Monday evening, the mill’s plans to continue operating with an extended line of credit from Siena indicates it would have auction procedures in place by Oct. 13, approval of a sale by Nov. 12 and a closing by Nov. 27.

The company had not filed all of the required documents to proceed with its bankruptcy by Tuesday afternoon, however. This prompted a court order to the company to disclose detailed creditor information and other documents by Oct. 13.

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