OLD TOWN, Maine — While city leaders say they are not worried about Friday’s bankruptcy hearing on whether a Wisconsin company will be allowed to purchase the shuttered Old Town Fuel & Fiber, they are concerned about when the mill’s past due tax bills will be paid.
“We are confident the sale of the mill will be finalized in December,” City Manager Bill Mayo said Tuesday. “The only concern the city has at this time is the structure of the potential sale agreement that could allow a junior secured creditor … to get paid some of its money now while Old Town, as a first priority creditor, must wait for payment.”
The mill closed in mid-August, furloughing 180 millworkers and 20 others in administration. On Aug. 21, New York-based private equity firm Patriarch Partners, which owns the mill, foreclosed on about $9.4 million in assets that includes the mill’s biorefinery, and some of those assets were assigned to Delaware-based Patriarch Partners Agency Services LLC, or PPAS, according to the purchase and sales agreement filed in court.
Expera Specialty Solutions plans to buy the Old Town mill from Patriarch Partners for $10.5 million and put the employees back to work. Before that can happen and U.S. Bankruptcy Judge Louis Kornreich considers approving the deal, he must first determine just how much money will be set aside for the mill’s unpaid bills.
Four unsecured creditors, who petitioned to force the company into bankruptcy in October, and many others claim they are owed more than $9.6 million from Patriarch Partners. The city of Old Town is owed about $1.6 million in property taxes and sewer fees.
Attorneys representing some of those creditors have raised concerns about the Expera-Patriarch sale agreement as outlined because it “carves out” only $300,000 for unsecured creditors and excuses Patriarch for any additional debt liability.
Bankruptcy trustee Pasquale “Pat” Perrino has said 3 percent of the gross sale amount is not enough in his opinion.
“Generally, I want 10 to 20 [percent] or better,” he said recently.
Kornreich will decide Friday whether that amount is sufficient, knowing that changes could jeopardize the deal between Expera and Patriarch, which operates the mill as Red Shield Acquisition, because the two parties disagree on whether it is a mandatory provision.
Another pressure is the deal also has a tight timeline for gaining final approval for the pulp mill’s sale.
Former employees would be paid about $817,000 in claims in vacation time and paid time off, and the city of Old Town would be paid through the sale that involves Expera settling $3.2 million in 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.
Kornreich approved a $1.5 million operating agreement two weeks ago with Expera to heat and prepare the plant to restart. His 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 bankruptcy trustee Perrino, who also is in charge of the complex Great Northern Paper bankruptcy.
Hackman Capital Partners, a California firm, successfully bid $5.4 million for the shuttered GNP mill in East Millinocket on Tuesday.
Duane Lugdon, who represents the mill’s workers as the Maine representative of the United Steelworkers Union, said Friday is “a big day” for Old Town.
“Unlike the experience we had with respect to the future of the East Millinocket mill, I expect that on Friday, we will emerge from this scenario in Old Town with a very promising outcome,” Lugdon said. “The only complicating factor might be if a bidder came from out of nowhere and bid more than the current suitor. I do not expect that to happen, but we’ll know on Friday.”
The bankruptcy judge indicated in his recent order that the terms and conditions of the purchase-and-sale agreement in Old Town, including the release from liability, will be determined in the proceedings that start Friday.
“The city hopes that any potential issues can be resolved on [Friday] and the mill is able to move forward under new ownership,” Mayo said.
BDN reporter Darren Fishell contributed to this story.