EAST MILLINOCKET, Maine — Potential buyers of the Great Northern Paper Co. mill would likely assume significant legal and monetary obligations accrued by the current owner, but legal experts think these obligations wouldn’t necessarily be deal breakers for a mill sale.
Barry Cohen, a Bangor lawyer with experience in mechanic’s liens — such as the one filed against GNP East Inc. by Northern Construction Services Inc., which is threatening to auction the mill to be repaid $242,000 — said the debts owed to lienholders and creditors would likely be assumed by anyone who buys the property if it is auctioned on Oct. 15.
“Who wants to buy a piece of property knowing that there are a number of liens that take precedence? Then again, if the mill is worth much more than the accrued debt, such a purchase might be worth it,” Cohen said. “It is a matter of dollars and cents. It really depends on the valuation of the property versus the total of those liens that take precedence over the creditor’s lien.”
Northern Construction’s attorneys confirmed Wednesday that the Glenburn company has scheduled an auction of the shuttered mill to recoup a $242,719 lien it placed on the property after Great Northern failed to pay it for mechanical, electrical and plumbing work.
Maine Superior Court Justice Ann Murray ruled on May 20 that Northern Construction could sell the land and buildings encumbered by the lien in 90 days. According to Murray’s order, Northern Construction is entitled also to attorney’s fees and interest. Surplus funds created by the auction will be held by the court for GNP, the order states.
GNP spokeswoman Alexandra Ritchie and the Portland attorney handling the lien court action, Gregg Frame, did not return several messages left this week seeking comment.
Although GNP officials haven’t spoken publicly about the scheduled auction, they held a conference call with Northern Construction and its attorneys on Sept. 11, Kimball said. He declined to provide details of the discussion.
On paper, the value of the mill far exceeds GNP’s indebtedness. Its land is valued at $1.5 million and its buildings at $15 million, according to East Millinocket tax collector Erica Ingalls. The equipment on the property is valued at $16.8 million, she said, but the equipment is not for sale, officials said.
The true value of paper mills, however, can be hard to determine. Other towns in Maine have steeply reduced the valuations of mills. Jay recently dropped the value of the Verso mill from $815 million to $592 million. Madison reduced the value of the local mill from $220 million to $80 million.
As of Thursday, GNP East Inc. had about $1.73 million in liens and attachments against it. That includes an Internal Revenue Service lien for $1.06 million, according to documents at the Penobscot County Registry of Deeds.
Lane Construction had two liens totaling $161,288; Security Fence, $11,650; Northern Construction, $242,719; and Timberland Trucking had an attachment against the property for $255,266, the documents show.
GNP also owes the town $658,657 in real estate and personal property taxes for the 2013-14 fiscal year, officials have said.
The question is how much a buyer would be willing to spend on a mill that is both carrying those debts, and has struggled to remain viable for a decade.
Cate Street Capital, the investment firm that formed GNP East, purchased the closed mill from Brookfield Asset Management for $1 in 2011 in a deal facilitated by the state.
The token purchase price was designed to give the new company a fighting chance to survive in the highly competitive paper market and put hundreds back to work.
Northern Construction attorney Curtis Kimball said purchasing the property could be a good business move for investors who do their due diligence. A minimum price will be determined the day of the auction, Kimball said. All bidders will be required to submit a deposit of $10,000 in cash or certified funds before their bid will be accepted on any parcel.
“It is not an automatic yes or no,” Kimball said Thursday. “Anybody who buys real estate in the state of Maine should always look at the title and do their title work. That is certainly part of the equation. It’s the same thing if you were to buy a car. You would want to look at the title and see if there were any lienholders and this sale will be subject to whatever is of record.”
Kimball declined to speculate on which lienholders against GNP East would be paid first if a sale takes place, saying that was a decision beyond his client’s purview.
Personal property and real estate taxes, such as those owed by GNP East to East Millinocket, are typically among the first debts the buyer repays, said Kimball. He declined to comment on where the IRS lien would fit into the mix and an IRS spokeswoman, Peggy Riley, said that she could not comment about the matter due to confidentiality.
The East Millinocket Board of Selectmen will meet privately with the town attorney, Dean Beaupain of Millinocket, at 4 p.m. on Monday to discuss the town’s rights and responsibilities with the GNP debt.
Beaupain listed several of what he called town concerns ahead of the auction. He said town officials want the facility to remain “in a condition that a buyer could start making paper with as little additional effort as possible.”
The board also wants the town to get paid its outstanding taxes — “and we would be especially concerned about any equipment leaving the property without the taxes being paid,” Beaupain said — and that the building be heated and maintained through the winter.
“The town is extremely concerned and will monitor this situation closely,” he added.