PORTLAND, Maine — A judge’s ruling on Wednesday will keep the Old Town Fuel & Fiber pulp mill running for the next two weeks in anticipation of a $10.5 million sale that still needs court approval.
The agreement for Wisconsin-based Expera Specialty Solutions to buy the mill from New York-based private equity firm Patriarch Partners sets out a tight timeline for gaining final approval for the deal. That will go before the court in a Dec. 5 hearing, a moment for determining the bankrupt mill’s longer-term future.
The operating agreement approved Wednesday calls for Expera to allocate $1.5 million to an account for the bankruptcy trustee to maintain the facilities and prepare for a sale that would put most of the employees laid off at the mill back to work.
The order also approves repaying Expera for any of those operating costs if a buyer outbids it for the mill during a required sale effort by the bankruptcy trustee, who also is in charge of the complex Great Northern Paper bankruptcy.
“This is a big first step,” said bankruptcy trustee Pasquale “Pat” Perrino after Wednesday’s hearing in U.S. District Court in Portland, which was scheduled to accommodate a midnight deadline for keeping the Expera deal alive.
Perrino said immediately after the hearing that he sent the company instructions to wire money to the operating account for the mill, which employs about 25 people. The sale could bring about 180 people laid off in August back to work.
Randy Cresswell, representing a management arm of Patriarch in the case, looked at Expera’s attorney Keith Cunningham as he left the courtroom Wednesday and said “the deal’s still on.”
Duane Lugdon, who represents the mill’s workers as the Maine representative of the United Steelworkers Union, said he had no comment on the ruling Wednesday but that “Dec. 5 will be a big day.”
That’s because Wednesday’s decision left the buyer, seller, creditors and trustee to sort out the largest remaining sore spot, which is just how much will be available to entities that hold unsecured debts from the mill, a group that includes suppliers and other businesses it dealt with.
Two attorneys representing some of those unsecured creditors have raised concerns about the deal as outlined by Expera and Patriarch because it anticipates the court allowing a “carve-out” of $300,000 for that group of creditors, who claim more than $9.6 million in debt.
That group does not include former employees who would be paid about $817,000 in claims in vacation time and paid time off. Those workers and the city of Old Town, owed about $1.6 million in property taxes and sewer fees, would be paid through the sale that involves Expera settling $3.2 million in such debts and paying another $7.3 million in cash that would be split among secured and unsecured creditors.
In total, Red Shield Acquisition indicated it has $42.5 million in liabilities and $5.2 million in assets. Red Shield is the company Patriarch formed to operate the mill, a reference to its prior owner.
The situation is difficult for the bankruptcy trustee, who must balance priorities of preserving the mill, its property and associated jobs with securing an amount he feels is suitable for distributing to the unsecured creditors.
And Perrino said Wednesday that he doesn’t think a $300,000 carve-out cuts it.
“I would never agree to a 3 percent carve-out,” Perrino said, referring to the gross sale price of $10.5 million. “Generally I want 10 [percent] to 20 [percent] or better.”
As written, the deal would allow that carve-out to relieve Patriarch of all of its remaining debts. While that decision of whether the amount is sufficient is up to the court, the letter of intent signed between Expera and Patriarch means changes to that amount could jeopardize the deal between the parties who disagree on whether it is a mandatory provision.
U.S. Bankruptcy Judge Louis Kornreich said in his order on Wednesday that the terms and conditions of the purchase-and-sale agreement, including the release from liability, will be determined in the proceeding scheduled to start Dec. 5.
That proceeding could include scrutiny from attorneys representing four unsecured creditors owed by Red Shield. Some concerns have already come up to that effect, connected with Red Shield manager and lender Patriarch’s Aug. 21 foreclosure on about $9.4 million in assets that include the mill’s biorefinery, where it planned to make wood-derived sugars into fuel.
Andrew Kull, an attorney for unsecured creditors Milo Chip and Richard Carrier Trucking, raised concerns about the transaction in a filing with the court, writing that the transaction before the bankruptcy “appears likely to create little or no funds for the benefit of general unsecured creditors.”
Michael Fagone, an attorney for Trico Mechanical Contractors and CCB Inc., raised similar concerns and wrote the letter agreement “appears to be setting the stage for other extraordinary relief, relief that is not logically or legally required in order to achieve a sale.”
Trico, based in Florida, and Westbrook-based CCB Inc. were among the four creditors who initially petitioned to force the company into bankruptcy in October.