PORTLAND, Maine — A late offer Friday from a competing distressed asset investor pushed up the starting bid on the machinery of the bankrupt Lincoln Paper and Tissue Co., which will go up for auction Nov. 10.
A U.S. bankruptcy judge approved bidding procedures and the starting offer of Los Angeles-based stalking horse bidder Reich Brothers, which raised its starting bid to $5.3 million from $5 million after another Los Angeles-based investor, Industrial Assets, made a late play to hold the opening bid on the mill machinery.
Both companies focus on liquidating industrial assets, but Lincoln mill attorney Sam Anderson said the company expects to get bids at auction to continue operating the mill.
“We do think that there is a going-concern sale that will happen here,” Anderson said Friday.
Based on discussions with SSG Capital Advisors, which the mill consulted in marketing the property to potential stalking horse bidders, Anderson said “a number of strategic buyers” expressed interest in the mill, specifically to produce specialty grades of paper, like those made on its No. 7 machine.
The Lincoln mill focuses on specialty tissue applications, including for party goods, napkins, towels, table covers and other uses.
The mill’s CEO and co-owner Keith Van Scotter said in a previous interview that supply in the specialty tissue market has not been growing at the rate of commodity white tissue, used in paper towels and bathroom tissue.
“Not a lot of people do what we do, and this mill does have a niche,” Van Scotter said.
The court took multiple breaks Friday to allow Industrial Assets to provide a formal competing offer to Reich Brothers’ bid, with changes that mostly focused on fees separate from the purchase price.
Jeremy Fisher, the attorney assigned to represent unsecured creditors of the mill, had worked with Industrial Assets to present the bid to the court, saying that Industrial Assets’ higher bid and removal of certain fees would be more favorable to his clients.
In response, Reich Brothers agreed to match the bid from Industrial Assets and to lower the amount it will be paid for serving as the stalking horse bidder if it does not win — called a breakup fee — to $150,000 from $175,000 and eliminated a provision that would allow it to recover up to $200,000 for other expenses.
The bid procedures will require the initial bid to come in at least $100,000 higher than Reich Brothers’ initial offer and set bidding increments of at least $50,000 after that.
The bidding procedures approved Friday set the auction for 9 a.m. Nov. 10 in the offices of law firm Bernstein Shur, an auction it opened to interested parties, partly to address concerns by a state lending agency and the union representing the mill’s workers.
Jeff Young, the attorney representing the United Steelworkers union in the case, on Friday said the union sought to extend the timeline for the auction out beyond Nov. 10, expressing concern about the time other parties would have to kick the tires on the mill.
The court denied extending that process in the interest of expediting the sale and limiting the amount of new debt the mill will take on as it continues to operate under a $2.3 million credit line extended after its bankruptcy petition.
Steve Mattes, the CEO for Industrial Assets, told the court by teleconference Friday that his company was not asked to participate as a possible stalking horse bidder. Mattes is also the CEO of auctioneer Biditup, which managed the auction for Verso’s shuttered mills in Bucksport and in Sartell, Minnesota.
Young, with the USW union, said Mattes’ statement that his company was not contacted before the bankruptcy petition raised concerns about the extent of the mill’s marketing process prior to its bankruptcy filing.
“We are concerned that Nov. 10 may not allow adequate due diligence from the parties to actually look at the operations of the mill,” Young said.
In court documents, mill officials said they contacted 169 possible stalking horse bidders before securing an asset purchase agreement with Reich Brothers and ultimately had 36 entities sign nondisclosure agreements in order to review confidential information about the mill’s operations.
Anderson said the bid from Reich Brothers represents to other bidders a sign that it was satisfied with its review of the mill assets.