Fraser seeks financial protection

15 years ago
By Kathy McCarty  
Staff Writer

    Fraser Papers Inc., together with its subsidiaries, has initiated a court-supervised restructuring under the Companies’ Creditors Arrangement Act (Canada) in the Ontario Superior Court of Justice. Company officials indicated Fraser would also be seeking similar relief pursuant to Chapter 15 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware.
    Pursuant to the CCAA proceeding, PricewaterhouseCoopers Inc. was appointed by the court as monitor to assist the company through its restructuring process. The company remains in control of its assets and business operations. Fraser officials see this as a way to ensure the viability of its operations.
    “The filing will provide Fraser Papers with a defined process and the necessary time to restructure its affairs in order to emerge with a sustainable and profitable specialty paper business,” said Peter Gordon, the company’s CEO.
    Fraser has been working with employees, suppliers, customers and governments over many months in an effort to reduce costs, improve fiber access and optimize operations in a challenging environment. The company has determined that continued operating losses, weak demand and selling prices for pulp and lumber, impending debt repayments and significant pension funding obligations require Fraser Papers to seek this protection from creditors while it continues to pursue alternatives to restructure its operations.
    “Unlike many restructurings, the court filing was not the result of excessive leverage,” said Gordon. “Our paper business remains profitable, particularly the specialty packaging and printing segments where there are opportunities to grow in a number of key segments. However, weak pulp and lumber markets have drained our limited resources, more than offsetting the progress in our paper business.”
    In support of this process, CIT Business Credit Canada has agreed to continue to revolve the existing working capital and, in addition, Brookfield Asset Management has agreed to provide debtor-in-possession financing. Together, these two banks will provide up to $20 million to fund operations during the restructuring process.
    Fraser’s operating plans are unaffected by Thursday’s announcement. Gordon said the two paper mills — one located in Madawaska and the other in Gorham, N.H. — will continue to operate without disruption, manufacturing specialty paper products for existing customers. The company will proceed with developing a framework for a restructuring plan, with the goal of making Fraser Papers more competitive and profitable, he added.
    State officials have been in contact with Fraser’s president, Jeffrey Dutton, since the announcement, and were reassured the company intends to continue operations on both sides of the border.
    “Workers, their families and the community of Madawaska have been through a lot this year. This news concerns me, but I was pleased to hear that the paper mill in Madawaska will continue to operate without disruption. There is no denying that our economy is experiencing a severe downturn and that it will take a while to get past our challenges. Maine has the best workers in the world and I will do all that I can to support them during these difficult times,” said Congressman Mike Michaud, after speaking by phone with Dutton.
    Sen. Olympia Snowe also spoke with Dutton concerning the circumstances of Fraser’s filing for bankruptcy in Canada and the impact of that decision on its U.S. operations, including its Madawaska mill.
    “I am encouraged that Fraser intends to continue its operations at the Madawaska paper mill through the restructuring process — a true testament to the skill and dedication of its workers. As I told Jeff in our conversation on Friday, I stand ready to assist Fraser during this process, to ensure that it emerges as an even stronger component of the economies of Aroostook County and the nation,” said Snowe.
    Governor John E. Baldacci released his own statement, upon learning Fraser had initiated court-supervised restructuring.
    “I talked with the CEO of Fraser Papers, Peter Gordon, Wednesday evening, and he explained that the filing will allow the company the opportunity to reorganize and chart a path toward renewed success,” said Baldacci. “Mr. Gordon assured me that the filing would not immediately impact the company’s operations in Madawaska or the employees there.”
    “My administration will continue to work with Fraser Papers and do everything possible to protect jobs in Maine,” Baldacci said.
    While the announcement didn’t name Fraser Timber’s Ashland and Masardis sawmills, both facilities are affected by the company’s decision.
    “They’re all connected — each is a separate piece of a bigger pie, if you will. The Madawaska mill uses chips from the Ashland and Masardis facilities. They go hand-in-hand,” said Ashland Town Manager Jim Gardner.
    Gardner said there’s a lot of confusion as to the type of bankruptcy involved.
    “Fraser filed for Chapter 15, which involves restructuring. That puts creditors in compromise with the business — allows Fraser to reestablish capital in a positive way,” said Gardner. “They didn’t file Chapter 7 and close their doors. They’re still operating and working to resolve financial issues brought about by the current market.”
    Gardner said part of the problem involves the Softwood Lumber Agreement and how now all provinces are abiding by it.
    “In May, Zoltan van Heyningen, of the Coalition for Fair Lumber Imports, in Washington, D.C., attended a meeting in Ashland to discuss how stumpage in British Columbia is being sold far below market value —about a 90 percent drop in price. They’re underselling not just American businesses, but other Canadian companies as well, including Fraser,” said Gardner. “The SLA affects both sides of the border.”
    Fraser’s problem isn’t any different than other businesses faced with tough economic times, according to Gardner.
    “Fraser’s not alone. The car manufacturers have been affected by the market and drop in sales, manufacturers all over the world are facing financial difficulties. Fraser’s just looking for a way to survive — a way to maintain operations and jobs,” said Gardner.
    Gardner said officials with Fraser Timber Limited discussed the restructuring with Ashland and Masardis employees, giving them the required 60-day notice that the mills might have to stop production come August.
    “Employees received notice of a possible August shutdown. It depends on whether the price of lumber goes up and other factors. Lumber prices are slowly increasing, which is good news, but a lot plays into the equation,” said Gardner.
    One of the key factors is whether the Edmundston pulp mill stays operational.
    “If Edmundston’s not running, that puts a lot of chips on the ground at our mills,” said Gardner, noting that while other uses could be sought for such chips, Fraser’s Edmundston operation takes priority.
    “Fraser can’t dedicate those chips elsewhere if Edmundston is operating and needs them,” he said.
    Gardner said Fraser’s facilities are dependent on each other; to keep one operating would, in all likelihood, require keeping another facility operational.
    “It’s a matter of ‘following the bread crumbs.’ We supply the chips to Edmundston. It’s all about proximity to the woods (raw materials) and Edmundston and other operations,” said Gardner.
    Gardner said it was his belief, as the manager who sits in a mill town, that it just “makes sense to have an American sawmill.”
    “We’re here because of the mills. That’s what we know, what we do and we will continue to do,” said Gardner.  
    On Tuesday, Gardner was heading south to meet with various officials to discuss what happens next.
    “As we (Fraser, local and state officials) go to Augusta, we know they’re (Fraser) restructuring. But some  of the questions we need to have answered are, ‘What do we do?’ and ‘Are we just going to wait, and, if so, for what?’ We need to keep our ducks in a row before we get there,” said Gardner.
    “It’s the market, the same as with everything else. It’s a hard time for investors to step forward. But, being an optimistic person, I’m seeing prices gradually going up,” said Gardner. “We just need to hang on — get over this latest bump in the road. We have a huge amount of potential here. We just need to find the best way to use it,” said Gardner.