June 30, 2008
Restructured Red Shield Likely to Survive
By AIMEE DOLLOFF; OF THE NEWS STAFF
OLD TOWN - The list of debts owed by Red Shield Environmental LLC and RSE Pulp & Chemical LLC to each of their 20 largest unsecured claims totals more than $5.6 million, according to documents from the companies' bankruptcy filings Friday.This doesn't mean, however, that the pulp manufacturing facility is closing its doors.
Chapter 11 of the Bankruptcy Code is designed to provide companies with the time and opportunity to reorganize, including by restructuring their debts or by obtaining new investment capital, according to a press release issued Saturday by the companies' Chief Executive Officer Edward Paslawski and Red Shield's attorney, Robert Keach of Portland.
"For a manufacturing company, it's pretty common to restructure and come back," Keach said Sunday.
Red Shield, composed of a group of private investors, purchased the former Georgia-Pacific Corp. mill in 2006 when G-P announced it was closing the facility. They brought in RSE Pulp to operate the mill.
Red Shield's assets are between $50 million and $100 million, while RSE Pulp's are listed in bankruptcy documents as being between $1 million and $10 million. The companies' liabilities are recorded as $1 million to $10 million, and $10 million to $50 million, respectively.
"Recent market pressures have created a significant cash flow and liquidity problem for RSE Pulp," according to Saturday's release.
Officials stated that the price of wood chips, which RSE uses as its chief raw material, has risen $30 a ton over the last few months. Rising fuel and chemical costs also have contributed to the problem, while there hasn't been any increase in pulp prices, leaving RSE Pulp temporarily unable to recoup the higher production costs.
"The mounting losses at RSE Pulp led to a withdrawal of credit support by the company's senior lenders, leading the company to default on payments to suppliers," according to the press release. "The company also faced possible termination of critical contracts. The company was left with no choice but to seek relief under Chapter 11 in order to continue its turnaround plans and to insure fair treatment of all creditors."
The top three creditors seeking money from Red Shield are:
. Nalco Co. of Pittsburgh, Pa., $338,838.
. Anthem Blue Cross-Blue Shield of Lewiston, $124,603.
. Old Town Water, $117,673.
Other creditors listed among the top 20 seeking payment from Red Shield include Bangor Hydro-Electric Co., Thornton Construction Inc. of Milford, and J.D. Raymond Transportation Inc. of Dover-Foxcroft.
For RSE Pulp, the three largest claims are:
. EKA Chemical Inc. of Marietta, Ga., $780,136.
. Milo Chip LLC, $626,864.
. Costigan Chip LLC, $435,091.
The top three claims against RSE Pulp, however, are listed as disputed claims in the bankruptcy filings.
Other claims that aren't listed as disputed include International Paper Cogeneration of Maine Inc., F.W. Webb Co. of Bangor, and Nalco Co.
In spite of the current shutdown, both companies intend to move forward with their plans to produce pulp and, in a partnership with the University of Maine and American Process Inc., build a biorefinery pilot plant to generate ethanol and other salable products from the pulping process.
"Despite this temporary setback, we are committed to a speedy reorganization to the benefit of our employees, suppliers and customers," Paslawski stated in the release. "With the new revenue sources we have identified and our potential in the rayon pulp market, we continue to believe that the future will be bright for RSE Pulp and Red Shield."
An example of a Maine company filing bankruptcy and making a major comeback is the Lincoln paper mill.
"They were in bankruptcy for a long time," Keach said Sunday.
Then a new buyer was found and the mill has been successful for several years, and has been able to purchase a new tissue machine and expand.
"It certainly can be done," Keach said.
A financing agreement couldn't be reached Friday in time to avoid filing Chapter 11, but Keach and state officials who are working to keep the mill from closing said they're hopeful financing can be secured early this week.
"Our priority remains to get the mill back open, and this move by the company will allow them to recapitalize and put them on the path to more stability in the future," Gov. John Baldacci said Saturday.
The state played a role in facilitating the deal in which Red Shield purchased the mill in an attempt to keep the facility operational. At the time of G-P's announcement that it was closing the mill, the company employed about 400 people and was the city's largest taxpayer.
Business hasn't been all downhill since Red Shield purchased the mill, and profits were made in August, September and October of last year. The company has reactivated a 16-megawatt biomass boiler, and Red Shield's tenant, RSE Pulp, has brought the 200,000-ton hardwood kraft pulp mill back to full production, according to the company officials.
This weekend's press release went on to explain that before filing for bankruptcy, RSE Pulp was in the process of converting its pulping operation to manufacture dissolving pulp, which is sold as rayon and is used principally for clothing. Rayon competes with, and negates the need for, petroleum-based clothing material and is an important fabric in the expanding Asian market because it does not retain body heat and also acts to wick moisture from the body.
As part of the current reorganization proceeding, the companies have obtained a new loan agreement with their lenders, Chittenden Bank and the Finance Authority of Maine, regarding continued working capital financing.
But they must continue negotiations with new revenue sources, which should ensure the future profitability of the companies, according to Saturday's press release.
The pulp plant, which ceased production June 6, will remain idle temporarily as the company reorganizes, but no additional layoffs will occur as a result of the Chapter 11 filing.
Employees haven't been paid in two weeks, due to what officials are calling short-term cash-flow problems, but Keach has requested payroll checks be issued - a decision that will be made at a hearing scheduled for Monday at U.S. Bankruptcy Court in Bangor.
Keach also anticipates an agreement could be made early this week to secure new revenue sources and allow the mill to restart soon afterward.
"This mill has a very significant upside," Keach said Sunday. "This is one that people should be rooting for."
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