Friday, May 11, 2007

St. Marys down to last hope of survival; Union enters talks with potential new ownership group

St. Marys down to last hope of survival; Union enters talks with potential new ownership group

Dan Bellerose
Local News - Friday, May 11, 2007 Updated @ 6:32:04 AM

The final chapter of bankrupt St. Marys Paper Ltd., be it new ownership or liquidation, likely won't be written for a couple more weeks.

The court-appointed receiver of the Sault Ste. Marie speciality papermaker, currently reviewing expressions of interest in the company's capital assets, has confirmed he will make no recommendation before the Ontario Superior Court of Justice today for asset(s) dispersal.

Meanwhile, the Communications, Energy and Paperworkers Union of Canada (CEP), representing 335 of 380 workers in the idle mill, entered formal discussions Thursday with a potential new ownership group.

According to Cec Makowski, CEP's Ontario Region vice-president, the as-yet-unidentified buyer appears to be the cash-strapped company's last hope for survival. It submitted the only offer to continue operations by last week's tender deadline.

"Thirteen submissions were made on company assets but only one of the offers was to operate on a going-forward basis; the other dozen were some shape or form of liquidation," said Makowski.

He refused to comment on where the talks were taking place, but Sault This Week said on its website Thursday that discussions were taking place in the Sault.

The suitor entered the process late, said Makowski, with less than two weeks left in the five-week capital asset sales process.

The two parties, which have had preliminary discussions prior to Thursday, are negotiating the possibility of a contract should the bid move forward.

"It might be a long-shot, there's no certainty we can agree to terms on a new contract, but it appears this could

the last shot at saving the mill," he said.

The union believes a tentative agreement will better position the suitor's ownership bid going forward but it must come together quickly. "The clock is ticking. . . . We cannot drag things out."

The union claims to have been in discussions with several potential ownership groups since their membership's near-unanimous rejection of the company's 11th-hour offer to salvage the then five-month restructuring process seven weeks ago.

Two interested buyers, which the union says were involved in active, ongoing, discussions for more than a month, walked away.

One party pulled out less than two weeks before the tender deadline, after a month of due diligence, and the second party advised the union it was exiting on deadline day itself, said Makowski.

Meanwhile the company's court-appointed receiver, Bob Kofman, of RMS Richter LLP in Toronto, says it could be "a couple of weeks" before he finishes his review and comes forward with a recommendation on asset dispersal.

"I don't know where people got the notion that (today) was decision day on the assets," said Kofman, in a telephone interview. "We are under no obligation to appear before the court (today) . . . We will make an appearance when there is something to recommend; maybe in a couple of weeks."

The seventh report of the court-appointed monitor in the Companies' Creditors Arrangement Act process, submitted April 3, set out 5 p.m. May 4 as the deadline for tenders in the capital assets sales process while it was "further hoped that court approval of a sales transaction can be achieved by May 11."

Makowski believes Kofman's recommendation will come sooner than later, "days not weeks."

"We received 13 offers but are limiting the review to the handful that appear the most workable," he said.

He doubts potential participants, buyers or liquidators will parachute onto the scene at the last moment.

"The process states that offers had to be made by last Friday. . . . It will be a challenge for anyone who missed the deadline to get back in the process."

Whenever Kofman does make his court appearance he will make a recommendation to the presiding Superior Court Justice, who will either approve on the spot, after consultation with the secured creditors, or delay the decision no more than a few additional days for further review.

The company, declared bankrupt two weeks ago, distributed information on the capital assets sales process to more than 70 identified parties, strategic industry players, financial investors, auctioneers, liquidators and persons recommended by the various stakeholders, including CEP.

Assets were offered in nine separate packages including: papermachines, supercalenders, winders and rewinder, woodroom and groundwood mill equipment, wrap line, and 38.5 acres of land with four buildings and more than one million square-feet of various-level floor spaces.

Packaged under "other assets" were items such as spare parts, office furniture and fixtures, computer equipment, trademarks and customer lists.

St. Marys, which emerged from 19 months of bankruptcy in 1994 with its acquisition by current ownership, including a 28-per-cent minority stake by employees, is one of 11 supercalender paper mills in North America, one of five such mills in Canada.

It produces about 240,000 tons of glossy supercalender paper annually for catalogues, flyers and advertising inserts.

The mill, with nearly a decade of profitability after exiting bankruptcy, claims to have lost money each of the past three years, staggered by the surging Canadian dollar, rising energy costs and spiraling pension obligations.

The company, which terminated the vast majority of its workforce three weeks ago, has an annual payroll in excess of $25 million.

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