Participants in the Great Northern Paper Co. bankruptcy must try to restore hundreds of jobs, prevent the contamination of local drinking water, stop winter cold from bursting the mill’s pipes and preserve millions of dollars in state tax credits.
Those challenges are at the forefront of an already contentious bankruptcy case that is playing out in Delaware, where Great Northern parent company GNP Maine Holdings LLC is incorporated.
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Charles Stanziale Jr., the federally appointed trustee for GNP, is fighting to keep the bankruptcy proceeding in Delaware, while a group of creditors that includes the mill’s local municipalities are pushing to have it transferred to Maine.
A hearing has been set for Friday in U.S. Bankruptcy Court for the District of Delaware to decide that issue.
The Great Northern case also has become fodder for political debate, in part because its two key investors are entitled to up to $16 million in state tax credits over the next five years even if the bankrupt mill in East Millinocket is shuttered permanently and sold for parts.
Moreover, any buyer of the mill would not inherit the Maine New Markets Capital Investment Program tax credits, making it a far less attractive investment.
SAVING JOBS, PROTECTING WATER
Creditors and Maine officials hope the bankruptcy will end with the closed mill’s sale to a new operator that would put more than 200 former employees back to work.
The mill, which is managed by the New Hampshire-based private equity firm Cate Street Capital, shut down in late January and laid off more than 200 workers a few weeks later, citing rising costs for energy and wood. The mill had produced newsprint and paper for the book publishing industry for more than 100 years. It filed for Chapter 7 bankruptcy on Sept. 22.
Chapter 7 bankruptcies often end in liquidation – the selling off of assets resulting in a permanent shutdown.
That possibility is deeply disturbing to town officials in Millinocket and East Millinocket. In addition to the economic losses, they fear a permanent shutdown of the mill could put the area’s clean drinking water in jeopardy, because Great Northern operates a vital wastewater treatment plant there.
In addition to waste generated by the mill itself, the plant also treats the runoff from a nearby landfill and a portion of East Millinocket’s wastewater. The town owns and operates its own treatment facility for residents, but it cannot handle all of the area’s municipal wastewater.
“East Millinocket requires the use and benefit of the secondary facility for the health and safety of its residents,” attorneys for the two towns said in a motion filed Wednesday with the Delaware court.
If no buyer steps in to take over operation of the plant, Great Northern should continue to run the plant, as it has been doing, to prevent sewage contamination in the area, the towns’ attorneys argued.
“If the debtor does not operate the secondary facility, the results for East Millinocket, its residents and locations downstream on the Penobscot River could be disastrous,” they said.
With winter approaching, there is an urgency to resolve the bankruptcy and keep the wastewater treatment plant heated to avoid freezing, which would render the facility inoperable, the towns argued.
ARGUMENTS OVER CASE VENUE
Stanziale, the trustee for GNP, said the same concern applies to the paper mill itself. If the pipes freeze and burst, he said, it would greatly lower the mill’s value, along with the chances of a buyer coming in to bring it back online.
“I can’t sell a plant that doesn’t work,” he said.
Both Stanziale, who wants the bankruptcy case to remain in Delaware, and a group of creditors, who want the case moved to Maine, are using that concern to bolster their arguments.
Three of the nearly 1,000 creditors to which GNP Maine Holdings owes more than $50 million argued in a recent motion that most of the mill owner’s assets and parties involved in the bankruptcy are in Maine.
According to the motion filed by creditors Hartt Transportation Systems Inc., Lynch Logistics Inc. and Lynco Inc., several other parties, including the former workers’ union representatives and the Maine Attorney General’s Office, support the proposed change of venue.
The towns of Millinocket and East Millinocket also support the change. They said bringing the case to Maine would help resolve the bankruptcy more quickly and give more of the interested parties an opportunity to participate.
The creditors have asked the court to cancel a meeting of creditors scheduled for Oct. 15 in Delaware and set a new meeting date in Maine.
But Stanziale, who is based in Delaware, said moving the case to Maine would require the appointment of a new judge and possibly a new trustee. Those changes would send the case back to square one and delay the outcome, he said.
George Gervais, state Commissioner of Economic and Community Development, said he agrees with Stanziale. State officials have been working with the trustee to identify a buyer, he said, and they would have to start the process over again if the case is moved to Maine.
INVESTORS MAY KEEP TAX CREDITS
Regardless of the end result, the two key investors in Great Northern Paper will be eligible to claim about $8 million each in state tax credits as a result of their initial $40.8 million investment in the company in late 2012.
The investors, Louisiana-based Stonehenge Community Development LXI LLC and Enhanced Capital New Market Development Fund X LLC, would have to meet certain conditions to claim the tax credits, said Christopher Roney, general counsel for the Finance Authority of Maine.
They would need to have continuing tax obligations in Maine, he said, which would only happen if they are invested in other businesses in the state. If the two investment funds receive any of their money back from the bankruptcy sale, they also would have to reinvest that money in Maine businesses, Roney said.
Maine New Markets tax credits would not go to any entity buying the bankrupt mill, he said, because Stonehenge and Enhanced Capital earned them by making their initial investment in the company.
“The credit actually resides with the investor,” Roney said. “The investor earns the tax credit by putting the money in.”
Maine New Markets credits are designed to help ventures that would not be viable without them. The lack of tax credits would place any new mill operator at a distinct disadvantage.
The tax credit issue has become fodder for debate among the state’s gubernatorial candidates.
Independent candidate Eliot Cutler issued a statement Tuesday describing the situation as a “scandal” and blaming Gov. Paul LePage’s administration for approving the deal.
A LePage representative did not respond to requests for a rebuttal Wednesday.
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