Tag Archives: St. Marys Paper

Who is buying St. Marys Paper?

A number company, 2319839 Ontario Inc., is in the process of purchasing St. Marys Paper.

Ernst & Young, as receiver of St. Marys Paper, describes 2319839 Ontario Inc. as a consortium of companies including an auctioneer, a real estate redevelopment company, a metals recycling company, and a forest products company.

In the purchase agreement, the Authorized Signing Offer for the purchaser is Justus Veldman. The purchasing company’s representing law firm is Mandryk, Stewart & Morgan of Tillsonburg, Ontario.

This purchaser may potentially seek to redevelop the mill into a biomass facility with a co-generation plant while liquidating the assets of the paper mill.

The purchase price has not been disclosed.

As a condition of sale, the employment of all the employees of St. Marys Paper will be terminated before the sale is closed.

The sale does not include the mill yard wood which is subject to a lien in favour of the Ontario Ministry of Natural Resources. Ernst & Young will continue to pursue a sale of the mill yard wood.

Who was interested in the mill? What was the sales process like?

• 36 parties executed confidentiality agreements to have access to the financial data and were offered visits to the site
• 14 parties visited the site
• 15 parties submitted letters of intent
• 9 parties submitted bids
• of the 9 bids, 3 were interested in operating certain aspects of the mill, or developing the mill into a biomass operation with a co-gen plant while liquidating all or some of the mill’s assets, 3 were from auctioneer firms, and 3 were from demolition firms
• minimal interest in operating the mill as a going concern or as a paper mill
• the 3 bids from parties planning to use a portion of the mill were focused on – but each of these parties presented significant closing risks with respect to closing the sale in a timely manner
• none of the bids would have generated significant proceeds to pay the mill’s debt to International Forest Products
• only 1 of the 3 bidders that wanted to operate a portion of the mill included a cash deposit – the other two were more an expression of interest.  The party that included the deposit was a joint submission from two companies  - one of which decided they were no longer willing to partner and withdrew from the sales process, and the other showed no evidence they had the financing to complete the sale
• Next the receiver moved on to those two demolition and auctioneering firms who had expressed interest.
• 3 bids were received from demolition and  auctioneering firms.   One was interested in operating certain parts of the mill or redeveloping the mill into a biomass operation while liquidating certain assets of the mill.
• another bid was received from a party who had not previously submitted a letter of intent
• the receiver evaluated the 4 bids and selected 2319839 Ontario Inc. as purchaser

Why does no one want to make paper at St. Marys Paper?

Parties interested in the mill said that in their view, the mill was uncompetitive in the current market and the cost to return the mill to an operating status would make the restart uneconomical for the purposes of manufacturing paper.

Debt owing to International Forest Products

The proceeds of the sale will go to International Forest Products as the first secured creditor, but it will not cover the amount indebted.

As of August 31, 2011, St. Marys Paper owes International Forest Products $7,621,606.14  In addition, the receivership process was funded by International Forest Products ($1.045 million) (including ongoing holding costs of the mill, security, insurance, other staff, electricity, etc).

Source: Ernst & Young

Ernst & Young Inc., the receivers for St. Marys Paper, have requested a court hearing on March 22 (Thursday) in Toronto to seek the court’s approval for the sale of St. Marys Paper in Sault. Ste. Marie, Ontario.

The purchaser is 2319839 Ontario Inc.

As part of the purchase agreement, the purchaser is requesting that the receiver terminate the employment of all St. Marys Paper employees, with or without notice, prior to the sale closing.

The parties involved are also asking the court to preserve the confidentiality of the purchase price to protect the integrity of any future marketing of the mill’s assets, in case this sale does not close as expected.

Ernst & Young Inc., receiver and manager for St. Marys Paper, will be court today to seek court approval for their proposed sales process.

St. Marys Paper, of Sault Ste. Marie, Ontario, was forced into bankruptcy on December 30, 2011 when the company was unable to afford to keep insurance on its idled mill.

What we know:

• The receiver has obtained insurance for the mill (monthly premium cost of $18,400)
• The locks have been changed and the company’s bank accounts have been frozen.
• The receiver is working to assess the status of the winterization of the equipment at the mill and is looking to estimate the costs and work to do so
• The receiver is expecting liquidation offers for the mill property and the assets, and is hoping for going concern offers.
• Two key employees who have previously worked on winterization activities and previous attempts to sell the mill will be retained as employees of the mill until the sales process is completed. The receiver is proposing to the court that an incentive bonus be paid to these key employees if they agree to remain employees of St. Marys until a week after the sale process is complete.
• International Forest Products (IFP) is a lender to St. Marys Paper, and is also the exclusive supplier of pulp to the mill, and the exclusive distributor of all super calendered and other printing and writing paper produced at the St. Marys Paper mill.
• St. Marys Paper owes IFP $7,621,606.14 (as of Aug 31. 2011) and has been in default of its obligations since April 1, 2011.
• Daniel Moore, Chief Operating Officer for IFP said IFP refrained from enforcing its security on the mill to give St. Marys a chance to secure additional funding to restart the mill and to raise capital for St. Marys proposed co-gen facility. IFP believes the value of the mill as collateral for the amount owing, may be insufficient to satisfy St. Marys outstanding obligations to IFP.
• Several parties jointly guaranteed the loan from IFP. They are: SMP Equity Corp., Marc Dube, Pauline Henderson, Todd Black, Robert Trjola, Henson and Tregonning Logging Ltd., Avery Construction Limited, 1022013 Ontario Inc., Knut Holding Inc., and Acton Exploration and Resources Inc. IFP has not, at this time, made any demand for payment from the guarantors.
• St. Marys Paper owes the Province of Ontario approximately $18,883,000.
• Additional creditors are owed approximately $15,000,000. This amount includes a property tax arrears to the city of Sault Ste. Marie for $5,234,000, unpaid stumpage of $387,000, and approximately $8,000,000 in trade accounts payable – most of which have been in outstanding for more than 60 days.
• As of June 30, 2011, the company owes approximately $587,000 in vacation pay to its management, mill workers, and staff.
• Some management personnel were possibly deferring their salary to conserve cash flow. The amount indebted to these personnel is not known.
• IFP was preparing to pull the plug on St. Marys in August of 2011. At that time, IFP believed a quick going concern sale of the mill would be the only option that would save the company from its liquidity crisis, and ultimately a liquidation. In September, IFP agreed to wait because St. Marys Paper said it was in discussions with a new lender who was prepared to make advances to St. Marys so they could meet their monthly payment obligations to IFP.
• At the end of September 2011, IFP was informed that the new lender was no longer interested in helping St. Marys, and IFP advised St. Marys it would be proceeding with its application to appoint a receiver.
• In October of 2011, IFP wanted St. Marys to apply the $733,127 it was expecting in a HST refund to its indebtedness to IFP. An interim relief motion was brought before a judge by IFP as a result of St. Marys Paper’s continuing delay to respond to requests. The judge agreed to the terms that would see St. Marys provide its cash balance to Ernst & Young until the receivership application was heard and finally disposed of. As of October 7, 2011, St. Marys Paper had a cash balance of $164,000.
• IFP raised concern that the mill only had a staff of fewer than 10 employees on August 31, but the financial documents released showed that the company paid out $470,000 for employee related costs between August 31 and October 7, 2011. This caused IFP concern because they knew St. Marys employees and officers have been deferring payment on their salaries.
• The valuation of St. Marys Paper is confidential, under terms of a protective order. IFP believes the public disclosure of this information could potentially prejudice any sales and marketing process with respect to the mill’s assets.

The sales process to be up for approval in court today, outlines a quick sales process with a closing date of March 2, 2012.

All offers for the mill need to be submitted by February 10.

Source: Ernst & Young – http://www.ey.com/ca/smp

On December 30, 2011 at 9am, St. Marys Paper of Sault Ste. Marie, Ontario fell into receivership after failing to provide proof of sufficient insurance coverage to the court.

The Ontario Superior Court of Justice has appointed Ernst & Young Inc. as receiver for the assets of St. Marys Paper.

St. Marys Paper has not had a good decade. Neither have the taxpayers of Ontario who have sunk millions of dollars into this mill, including $17 million to the current group of owners when they purchased the mill in 2007 just as a liquidator was about to sell off all the assets after the mill was bankrupt.

The mill hasn’t operated since last spring. In October, the workers met and decided to give their employer until January 31, 2012 to restart or sell the mill before they planned to launch legal action to get the severance pay that is owed to them under their contract, and under Ontario’s Employment Standards Act. It is estimated that the company owes the workers between $5-8 million.

Sources:
Ontario Superior Court of Justice – Initial Court Order [pdf]

St. Marys Paper of Sault Ste. Marie, Ontario has won a property tax appeal.

The company appealed its property assessment for 2006, 2007, and 2008.

An assessment board has ruled that the total assessment (both property taxes and education taxes) be reduced from $12.935 million to $3.78 million. This reduction will also have an affect on the tax years 2009, 2010, and 2011 due to the concept of tax capping.

The net municipal cost of this assessment appeal is $3,292,419.

As a result, the company is due a total refund of $829,321.09 for both its city and education taxes. $414,892.88 of the refund is payable to the Wishart Law Firm LLP under a solicitor’s lien on the refund, and the remaining $414,428.21 has been paid to St. Marys Paper.

The City of Sault Ste. Marie has a contingency reserve in place for tax appeals.

Source: Sault Ste. Marie City Council agenda – December 5, 2011 (see .pdf)

The workers of St. Marys Paper in Sault Ste. Marie, Ontario are giving their employer until January 31, 2012 to restart or sell the mill before they plan to launch legal action to get the severance pay that is owed to them under their contract, and under Ontario’s Employment Standards Act.

Kim Ginter, Ontario vice-president of the CEP, said the union’s position is that as a result of the seven month layoff still underway, the company owes employees between $5 million and $8 million.

While the CEP have won an arbitration decision for severance pay under the Employment Standards Act from the first lengthy layoff in 2010, Ginter said that enhanced provisions for severance pay in the collective agreement are still in dispute and would go to arbitration this November.

The future of the mill is unclear. Ginter describes the mill’s financial situation as “pretty desperate”. CEO Dennis Bunnell said there are still several “irons in the fire”. He said there are parties interested in buying the mill, or entering into an ownership partnership.

There are four locals representing the workers of the mill. Local 133 voted to take legal action now by filing papers to place a lien on St. Marys Paper. The Union recognizes that this would result in bankruptcy for the mill, so they have agreed to wait until January 31st along with the other 3 locals.

Read more:
St. Marys Paper gets reprieve from its workers (Sault This Week)

The workers of St. Marys Paper in Sault Ste. Marie, Ontario have scheduled a meeting for October 18.

The mill hasn’t operated since the spring. The workers are frustrated and want some decisions made.

Kim Ginter, Ontario Region vice-president of Communications, Energy and Paperworkers (CEP), told The Sault Star that the union has grievance procedures laid out in its collective agreement as well as “other avenues.” “I’m not sure we are prepared to exercise them. It’s dependent on the information that the company gives us and the wishes of the membership,” Ginter said. “At this point in time, there hasn’t been a decision to proceed legally.”

Union officials aren’t giving more details until after they meet with the unionized workers. Four CEP locals represent the 200 employees of the mill.

The workers haven’t heard from their employer since July 6, 2011, when CEO Dennis Bunnell said in a letter that the company was working on re-capitalizing to improve its financial stability and expected to complete the process in 4-6 weeks.

The mill has only operated for 4 months out of the last 20 months.

Read more:
Paper mill workers will be looking for answers and a plan at meeting (Sault Star)

Both St. Marys Paper and Flakeboard Company Ltd. of Sault Ste. Marie, Ontario will be receiving help with their electricity rates from the Government of Ontario.

The Northern Industrial Electricity Rate Program is a three-year program (averaging $150 million annually) that will help large industries in Northern Ontario improve their energy efficiency and sustainability.

Through the program, St. Marys Paper will receive $1.5 million this year and approximately $14.5 million over three years.

Flakeboard Company will receive $1.9 million this year and approximately $6.4 million over three years.

“Flakeboard is very appreciative of the government’s recognition that Northern Ontario businesses are significantly challenged,” said Mike Rosso, Northern regional director of Flakeboard Company. “This program provides the necessary support for our SSM facility to pursue energy conservation initiatives that would otherwise be very difficult to implement. The provincial government is commended for setting up the program that ensures we are accountable for delivering an Energy Management Plan; a plan that provides measurable gains in energy conservation. These gains will help support the long-term viability of the operation for the benefit of all stake-holders in our community and province.”

St. Marys Paper has been idle for 8 months. Chairman and Chief Executive Officer Dennis Bunnell said the lowered electricity rate will help the mill become more competitive, and is a big step towards “restarting the paper making operations and moving the company forward into the bio-economy.”

More information about the Northern Industrial Electricity Rate Program

Source: Government of Ontario

The Sault Star is reporting that St. Marys Paper has isolated the mechanical problem with its paper machine #5, but because of the downtime caused by the repair, their customers have gone elsewhere.

Dennis Bunnell, CEO of St. Marys Paper in Sault Ste. Marie, Ontario, said, “We are not restarting until we’ve got something resembling a backlog in the order book. Customers have gone elsewhere for their paper since we’ve been down and we’ve got to work at building up orders again.”

Bunnell is estimating a restart won’t be likely until late May or early June. All the mills employees have been laid off.

St. Marys Paper is still working on developing a sales plan with its newest marketing and sales agent, International Forest Products Corporation (IPF). St. Marys Paper signed a multi-year agreement with IPF to be the exclusive marketing representative of the mill. The agreement also incorporates fiber supply, as well as financial, logistics and sales service support. IFP then contracted with Bulkley Dunton to market and distribute St. Marys’ products in the United States.

Sources:
St. Marys Paper needs orders — CEO (The Sault Star)
IFP and Bulkley Dunton announce marketing agreement for St. Marys (International Forest Products Corporation)

St. Marys Paper in Sault Ste. Marie, Ontario has laid off all of its employees, just 4 months after restarting operations.

Two weeks ago the company laid off half of its employees, blaming the downtime on mechanical problems of its lone operating paper machine.

The Sault Star is reporting that their preliminary information has the layoff lasting at least four to six weeks. The CEO of St. Marys Paper, Dennis Bunnell, had not responded to the local newspaper’s repeated phone calls.

Kim Ginter, regional vice-president of the Communications, Energy and Paperworkers Union of Canada, plans to meet with the mill’s officials on Wednesday to learn more information.

Read more:
St. Marys Paper lays everyone off: union (Sault Star)