BANGOR, Maine — A federal bankruptcy judge approved a plan Friday that would allow East Millinocket to collect at least 90 percent of the property taxes it is owed by Great Northern Paper, provided the company’s mill is sold next month.
U.S. Bankruptcy Court Judge Louis Kornreich also approved setting aside 30 percent of the shuttered GNP mill’s sale price to pay unsecured creditors who have filed claims. The mill auction is set for Dec. 2. A separate motion by the bankruptcy trustee authorizing a $350,000 loan to pay for heating and maintenance of the mill until the auction was also approved.
Based on the number of claims filed, unsecured creditors should receive 5 to 20 percent payment of the debts they are owed, said attorney Randy Creswell, who with attorney Jeremy Fischer represents bankruptcy trustee and attorney Pasquale “Pat” J. Perrino.
As of Friday, 100 unsecured creditors had filed claims out of more than 500 owed money by GNP. The 100 creditors are owed a total of about $11 million out of the $22.6 million in unsecured debts Great Northern revealed in its court filings, Creswell said.
“This global compromise is the best opportunity for the estate and its creditors that is out there,” Fischer said during the hearing at the federal courthouse. “We think that by clearing away all this dispute, some of those [potential mill purchasers] will be more invested in this.”
“In my experience I don’t think I have ever seen such a broad compromise come together in such a short period of time,” Fischer added.
Friday’s hearing was intended, Fischer told Kornreich, to clear the decks for the auction. Securing an agreement with a buyer who will restart the mill, which employed 256 workers before it shut down in January, and getting payment for unsecured creditors have been Perrino’s top priorities since he was appointed trustee in October, he said.
East Millinocket is a secured creditor owed $767,392 in pro-rated property and real estate taxes for this fiscal year, which began July 1, and the 2013-14 fiscal year, said attorney Rob Crawford, who represents the town.
At 90 percent, the town will get $690,652 of what it is owed if the sale goes through. It could get more if the sale price is high enough. As a secured creditor, the town would be one of the first in line to be paid under bankruptcy law.
“That’s better than we had been warned about earlier. If we are getting 90 percent, that’s 10 percent more than we thought we would, and that’s good,” said Mark Scally, chairman of the East Millinocket Board of Selectmen.
“The contingency, of course, is that the sale goes through,” Crawford said after the hearing. “But we can draw some comfort that the stalking horse has a lot of skin in the game and that there will be a sale at the auction. Everything the trustee is telling us [is] that there is a huge degree of interest among the 12 potential buyers in the mill.”
Perrino has said that 12 potential buyers, including four that are interested in operating the mill, have expressed interest. That includes GNP Acquisition, a stalking-horse bidder that has offered $2.6 million to buy and scrap the mill. A stalking-horse bidder is an entity that agrees to make a minimum bid or purchase to allow an auction to proceed.
GNP Acquisition first appeared in court documents on Nov. 7. An online search revealed that one of its principals who signed the asset-purchase agreement, William Firestone, is president of Capital Recovery Group, an auction and appraisal firm, according to its website, crgauction.com.
Under Friday’s deal, GNP Acquisition would be paid back the $350,000 in maintenance costs it is providing by the auction winner or that money would be credited to the company if it wins the bidding, Creswell said.
The compromise involving creditors saves millions of dollars, and possibly years of litigation, Creswell said, but it also represents a great loss to the unsecured creditors, of whom slightly more than 50 percent are Maine vendors.
“I am not disputing that you have millions of dollars in losses here, but it [the compromise] is better than nothing,” Perrino said.
The unsecured creditors represent $22.6 million of the $65.08 million in liabilities two Great Northern corporations incurred before they began filing Chapter 7 bankruptcy claims in September. GNP East Inc. owns the land and buildings at the shuttered mill. GNP Maine Holdings LLC owns the mill’s papermaking equipment.
According to documents filed Oct. 31, GNP East estimated the value of its mill holdings at $16.5 million. Secured creditors are owed nearly $2.038 million. The company listed no unsecured creditors.
GNP Maine Holdings owes $65 million to its creditors but has just $28.15 million in assets, according to documents filed Oct. 3 that outlined in detail its assets and liabilities.
The money owed to companies and individuals that have secured claims either through liens or court judgments against GNP Maine Holdings totals $42.34 million, including $20 million owed to Stonehenge Community Development of Baton Rouge, Louisiana, and $20 million to Enhanced Capital New Market Development Fund of New Orleans, Louisiana, which hold mortgages on the mill.
East Millinocket is working with the trustee to ensure that water treatment facilities the town once shared with GNP are still available with no interrupted service until at least Dec. 2, Scally said.