Tag Archives: Terrace Bay Pulp

The Ontario Ministry of Labour is laying charges under the Occupational Health and Safety Act for the events that led to the fatal explosion that occurred last October at the Terrace Bay Pulp mill.

TJ Berthelot of Schreiber, Ontario was killed when a large blow tank exploded.

Charges have been laid against:

• Terrace Bay Pulp
• Venshore Mechanical Ltd.
• 3 unnamed supervisors

All the charges are related to the defendants failure to to ensure that the tank was drained and cleaned before welding work was preformed, and for failing to provide adequate instruction and supervision for how to safely drain and clean the tank.

A court date of November 23, 2012 is scheduled in Thunder Bay.

Read more:
Mill charged (TBNewsWatch

After the judge approved the sale of Terrace Bay Pulp to AV Terrace Bay yesterday, the Steelworkers counted the results of the vote they took last week on the proposed collective agreement with their new employer.

More than 75% of the ballots cast were in favour of accepting the new contract.

Details known so far:

• 5 year contract
• workers will have to pay 25% of their benefits (employer covered 100% previously)
• contract includes more liberal contracting-out language
• no pay increase for the first 3 years
• small increase in the last 2 years

Some of the workers will be recalled to work as soon as next month to start preparing the mill for an October start.

Source:
Steelworkers approve Terrace Bay mill contract More than 75 per cent of the union membership vote in favour of contract with Aditya Birla Group (CBC)

On Monday the Judge adjourned the hearing concerning Terrace Bay Pulp and is preparing a written statement to rule on the decision to sell the mill to AV Terrace Bay, a company belonging to the Aditya Birla Group of India.

Late last week, the workers at the mill, represented by the United Steelworkers Union, voted on a tentative contract with Aditya Birla.

Shortly afterwards, when the fight that Tangshan Sanyou Group Xingda Chemical Fibre was engaging in to have the ability to bid on the mill became known, the Steelworkers legal counsel advised the Terrace Bay Local to not count the ballots.  The ballot boxes have been sealed and the ballots have not yet been counted.

Meanwhile, the bidding war between Birla and Tangshan has not gone unnoticed in Terrace Bay, but locals are tiring of the uncertainty that has persisted over the last nine months.  “It’s exciting, but we just want things to get started,” said businessman Jacques Roy. “Everybody’s flat broke around here.”

Read more:
Terrace Bay mill sale cloaked in drama (The Chronicle Journal)
Terrace Bay Pulp stakeholders wait on judge’s decision (CBC)

A couple of hearings to pay attention to today:

Terrace Bay Pulp

Terrace Bay Pulp will be in a Toronto courtroom today to present their latest update to the Ontario Superior Court.

Terrace Bay Pulp will be asking for court approval for the sale of the mill to AV Terrace Bay (a new company formed by Aditya Birla Management Corporation Private Ltd.)

The mill will also be asking for a sixth extension to their creditor protection period (until October 31, 2012) in order to complete a sale of the mill.

Tangshan Sanyou Xingda Chemical Fibre Co. Ltd. of China is eager for today’s court hearing because they insist they have a superior offer that the court needs to consider, regardless of the fact their binding offer was received almost 4 months after the court approved deadline for submission of binding offers.

Tangshan feels their offer is superior because under their proposal, the Province of Ontario would be fully repaid, and there would be $10 million remaining to satisfy the claims of other creditors.

NewPage Port Hawkesbury

Today a hearing will be held in Halifax by the Nova Scotia Utility and Review Board.

Pacific West Commercial Corp., the company that wishes to take over and reopen the Port Hawkesbury paper mill, has filed an application jointly with Nova Scotia Power, to the review board for a load retention rate mechanism.

The load retention rate is intended to provide a positive contribution to the fixed costs of the electricity system so Nova Scotia Power’s rate payers will be better off with the mill operating under the load retention rate that if the mill does not operate.

Pacific West Commercial Corp. said in their application that obtaining an appropriate electricity cost is the single most critical element in ensuring a successful restructuring plan for the mill.  Without it, Pacific West Commercial Corp. will not finalize its arrangements to acquire the mill.

Lawyer Bill Mahody, a consumer advocate appointed to this case by the provincial government and the Nova Scotia Utility and Review Board, says the proposed power rate arrangement is too risky for Nova Scotia’s rate payers.

So far, the Nova Scotia Government has spent $7.6 million keeping the NewPage Port Hawkesbury mill hot idled.

Latest details on the sale of the mill

More details have been released about the proposed sale of Terrace Bay Pulp to the Aditya Birla Group.  Here is the latest:

• Aditya Birla Management Corporation Private Ltd. has formed a new company called AV Terrace Bay that will own and operate the Terrace Bay mill
• Terrace Bay Pulp has asked for an extension to its creditor protection period until October 31, 2012 in order to complete the sale and transfer to AV Terrace Bay
• 13 non-binding letters of intent received for the mill by the deadline of Feb. 15, 2012
• 8 of the parties attended mill tours and management presentations
• 8 binding offers were received by the March 16th bid deadline
• Of the 8 binding offers, 2 were to restart the mill as a going concern. 6 were from liquidation or decommissioning firms
• 1 of the 2 going concern bids was in the form of a non-binding letter of intent and was subject to significant future due diligence and conditions
• The Monitor (Ernst & Young), Terrace Bay Pulp, and the province of Ontario reviewed the bids and determined the offer from AV Terrace Bay was the superior offer, and the best opportunity to secure a long-term future for the mill

Purchase Price of the mill

AV Terrace Bay’s purchase price for the mill is $2 million plus the amount of the assumed liabilities.

The assumed liabilities includes the approximately $24.2 million (plus accrued interest and costs) the mill owes the province of Ontario from a loan granted in 2010 allowing the mill to emerge from its first period of creditor protection.

As a condition of the purchase agreement, the province of Ontario will forgive the provincial debt obligations of the mill.

The total cash and cash equivalent value of the transaction is approximately $27 million.

Who signed the Purchase Agreement?

The purchase agreement is signed by Frank Dottori, Chairman of AV Terrace Bay Inc. and Peter R. Forestell, Q.C., Secretary of AV Terrace Bay Inc. for the purchaser, and by Wolfgang Gericke, Director of Terrace Bay Pulp Inc. as the seller.

Frank Dottori is the current Chair of CRIBE – the Centre for Research & Innovation in the Bio-Economy.  He founded Tembec Inc. in 1972 and was Tembec’s President and CEO from 1979 until he retired in 2006.

Conditions on the sale

In order to conclude the purchase agreement, AV Terrace Bay wants to enter into a new 5 year collective agreement with the unions at the mill by July 24.  AV Terrace Bay will assume all the unionized employee related liabilities including wages, benefits, credit for years of service, pensions, and other employment-related amounts.

AV Terrace Bay will be required by the purchase agreement to offer employment to all the non-unionized employees on terms that are consistent with those currently in place between Terrace Bay Pulp and the employees.

Also, AV Terrace Bay will establish new benefits plans for both the unionized and non-unionized employees that are substantially similar to the benefits the mill already offered.

If AV Terrace Bay needs to terminate the employment of any employee, unionized or non, the employee will be credited with their past years of service at the mill.

The purchase agreement requires the sales transaction is closed before the end of July.

What about the golf course?

Terrace Bay Pulp owns several non-mill related assets including a 9 hole golf course, an airstrip, vacant lakefront lands, and lands to the south and west of the mill site.

AV Terrace Bay is not purchasing these assets. They will be marketed and sold and the profits will be distributed to Terrace Bay Pulp’s creditors.

Aditya Birla

Aditya Birla has been in existence since 1857.  The company owns and operates several lines of business around the world.  Their revenue at the end of last year was approximately $25 billion US and they employ an estimated 133,000 employees around the world.

Of interest is the company’s viscose staple fibre business.  Aditya Birla uses viscose staple fibre in their production of textiles and other non-woven applications.  They operate 3 mills in India (and a fourth is being constructed), and a mill in Thailand, Indonesia, and China, with another plant being constructed in Turkey.

Aditya Birla uses dissolving pulp to produce the viscose staple fibre.  Right now, they operate 4 dissolving pulp facilities – 2 in New Brunswick (Nackawic (“AV Nackawic“) and Atholville (“AV Cell“) mills), and one in India, and Sweden.

The company plans to spend up to $250 million to convert the Terrace Bay Pulp mill to a dissolving pulp mill as they did with their facilities in New Brunswick.  Because the dissolving pulp will be sold to Aditya Birla’s own facilities, the market for Terrace Bay’s pulp is predicted to be much more stable and less cyclical than the NBSK pulp that the mill historically produced.

AV Terrace Bay wants to restart the mill in October 2012 to continue producing NBSK pulp while the company spends the next 2-3 years to convert the facility to a dissolving pulp mill.

Late bids for the mill

There were 4 late bidders who expressed interest in the mill.  These bidders were informed they could conduct due diligence, but that their interest would only be entertained if the sales process with AV Terrace Bay is not complete.

3 of the late bidders expressed interest in operating the mill as a pulp production facility. 1 wanted to convert the mill to a biomass facility.

2 of the late bidders submitted deposits.

1 of the bidders who submitted a deposit was  Tangshan Sanyou Xingda Chemical Fibre Co. Ltd. of China. Unlike the other 3 late bidders, Tangshan’s offer was not subject to additional due diligence or other conditions.

Ernst & Young, and Terrace Bay Pulp consulted with the province of Ontario about the late bidders.  It was decided that because the bids were late, and the discussions with AV Terrace Bay were already at an advanced stage and supported by certain key stakeholders, and that the remaining cash resources of the mill were at risk of being depleted, that it was not worth the risk of delaying the potential for closing a sales transaction.

Tangshan, through Recovery Partners Ltd., sent a non-binding letter of intent on July 5, hours before the Purchase Agreement with AV Terrace Bay was executed. The offer from Tangshan was conditional on several items, including the need to negotiate with the mill’s stakeholders, receive final approval from China’s regulatory authorities, conduct environmental and employee related due diligence, negotiate an asset purchase agreement, and other regulatory approvals and licenses.

Despite being told their late bid would not be considered, on July 10, Recovery Partners, on behalf of Tangshan, submitted a second non-binding letter of intent, requesting that the sales process be opened to a formal auction.  In this non-binding letter of intent, Tangshan increased their purchase price to $35 million and said they would use the same agreement AV Terrace Bay had negotiated and would close on the same conditions.

Two days later, Tangshan sent a binding offer.  At that point, Ernst & Young and their counsel, and the province of Ontario’s counsel met with Tangshan and its counsel and Recovery Partners.  They were informed that their bid was not submitted with the court approved sales process and their bid could not be considered, but it would be reported to the court.

     Terrace Bay Pulp – photo by Sean Irwin, 2010

The Aditya Birla Group of India is the successful bidder for Terrace Bay Pulp.

Through their Canadian subsidiary, The AV Group, Aditya Birla Group currently operates the Nackawic (“AV Nackawic“) and Atholville (“AV Cell“) mills in New Brunswick, producing dissolving pulp to export to rayon producers in Asia.

The company plans to convert the Terrace Bay Pulp mill to produce rayon grade pulp for export.

“The acquisition of Terrace Bay Mill and its subsequent conversion into a dissolving grade pulp mill is a major strategic move for our business where we are global leaders. The Terrace Bay Mill upon conversion will provide superior quality pulp for our viscose staple fibre business. The provincial government and communities in the Northwest have been very supportive and welcoming. We have about a 6,000 strong workforce operating in Canada and we look forward to furthering this productive and meaningful relationship.”

– Kumar Mangalam Birla, Chairman of the Aditya Birla Group

The purchase price has not been confirmed. Indian news sources have reported it to be both $300 million US and $110 million US.

The company will invest more than $250 million over the next two years, converting the facility to produce rayon fibre. In the meantime, the mill will restart and produce and sell paper grade pulp, bringing some of the mill’s 275 employees will be back to work by October.

There is some indication that an announcement concerning the future of Terrace Bay Pulp is forthcoming – possibly as soon as tomorrow.

Terrace Bay Pulp is currently under creditor protection, for the second time since 2009. On June 15, 2012, Terrace Bay Pulp was granted another extension to its latest creditor protection period – until July 16, 2012.

The mill has operated only briefly after an explosion of a blow tank on October 31, 2011 resulted in the death of an employee. Due to a lack of liquidity, the mill was unable to repair the damage and replenish the raw materials necessary to resume operations at the mill and entered a period of creditor protection through the Companies’ Creditors Arrangement Act (CCAA) on January 25, 2012.

Recent Developments

The mill has been making improvements, while idled, from funding it received through the federal government’s Green Transformation Program with hopes these upgrades will attract a purchaser. This work is expected to be complete by July 16.

Insurance has covered repairs to the equipment damaged in October’s explosion, minus approximately one million dollars as a deductible.

It is expected that Terrace Bay Pulp will exhaust its cash resources by late July.

Sales Process

Ernst & Young, as monitor, has been working with Terrace Bay Pulp to find a purchaser for the mill. Originally, a successful bidder was to have been chosen by March 19, 2012, but consultations between the company, Ernst & Young, and the province of Ontario as a major creditor resulted in the sales selection process being extended until June 15th, or later if required to close a deal.

A number of offers were received. One bidder has been actively involved in discussions with Terrace Bay Pulp, Ernst & Young, and the Province of Ontario.

About the Mill

The Terrace Bay Pulp mill was constructed in 1948 by the Kimberly-Clark Corporation.

Neenah Paper acquired the mill from Kimberly-Clark in 2004.

Currently Terrace Bay Pulp is a wholly-owned subsidiary of Lucky Star Holdings Inc. and is one of several companies in what is sometimes referred to as the Buchanan Group. In 2006, the Buchanan Group acquired the mill from Neenah Paper.

The mill is capable of producing various blends of northern bleached softwood kraft pulp and northern bleached hardwood kraft pulp, together with certain other byproducts.

The mill has two full integrated pulp lines, and three integrated pulp machines, with a rated capacity of approximately 550,000 air-dried metric tonnes of pulp per year (hardwood and softwood combined).

Some updates from Terrace Bay Pulp:

• Insurance: Terrace Bay Pulp has general liability insurance until May 31, 2012. The company has made efforts to re-establish Replacement Property Insurance, but the only quote secured totaled $2.2 million per year with a limit of $50 million, subject to a $10 million deductible. This amount was deemed too expensive for a mill that is not operating, so the general liability insurance alone will be maintained.
• Green Transformation Program Projects: Terrace Bay Pulp had been participating in two projects under the federal Green Transformation Program. The company had already received funding of $420,000 for these projects. Terrace Bay Pulp sought and obtained a court order during its creditor protection proceedings authorizing it to finish these projects. At this time, work has not been restarted on these projects and Terrace Bay Pulp has not been able to pay the $420,000 it owes to contractors in relation to work on completed on these projects prior to November 2011. At this time, it seems unlikely that these projects will be fully completed by their March 31, 2012 deadline.
• Sales Process: In regards to the sales process, interested parties have executed confidentiality agreements, and Ernst & Young, as court appointed monitors, said earlier this week that they were expecting to receive letters of intent by the Feb. 15 deadline outlined in its sales process.
• Extension: Terrace Bay Pulp’s creditor protection period is set to expire on Feb 24. The company is seeking an extension to April 27, 2012, allowing it to continue the sales process, sell its other real estate (nine-hole golf course, undeveloped lakefront land and townhouses in the community of Terrace Bay), as well as to complete repairs on the blow tank and stabilize the mill.

Source: Ernst & Young

The document listing Terrace Bay Pulp‘s creditors is 8 pages long and totals $41,456,859.90 Canadian, and another $1,531,404.42 is owed in U.S. Funds.

The biggest creditor is the Ontario Government at $24,166,666.00

Many of the companies owed are in Terrace Bay and Thunder Bay, Ontario, ranging from chemical companies, to fuel supplies, trucking and transportation companies, office equipment providers, couriers, engineering firms, mechanical equipment, rental, and service providers, logging companies, and local food and accommodation providers.

View the full list [.pdf]

Terrace Bay Pulp is now in a period of creditor protection through the Companies’ Creditors Arrangement Act (CCAA).

Ernst & Young Inc. has been appointed as Monitor by the Ontario Superior Court of Justice.

The initial court order has provided a stay of proceedings until February 24, 2012. During the stay period, the company is unable to make payments on the supply of goods or services prior to January 25, 2012, unless specifically mentioned in the court order. All parties are prohibited from commencing or continuing legal action against Terrace Bay Pulp during the stay period.

What Happened?

Terrace Bay Pulp completed its annual major shutdown just prior to the explosion of a blow tank on October 31, 2011 that resulted in the death of an employee. The unexpected shutdown that occurred as a result of the explosion happened at a time when the mill was vulnerable to additional expenses and a lack of production due to the annual shutdown. This resulted in a major liquidity crisis at a time when pulp prices were declining.

Terrace Bay Pulp told the court the declining market conditions, the liquidity crisis, and the upward impact on costs of production due to the loss of equipment damaged in the explosion resulted in their decision to idle the mill.

The mill was restarted briefly after the explosion only to convert the remaining raw material to finished goods.

Due to their liquidity crisis, Terrace Bay Pulp was unable, financially, to replenish the raw materials necessary to resume operations at the mill.

Financial Status

As of December 31, 2011 the company had just over $4 million in cash. Combined with net receivables, inventories, cpaital, and other assets, Terrace Bay Pulp has assets worth $46,290,607.

There are approximately 375 employees of the mill (50 non-union, 325 union). There are two unions representing workers at the mill – the United Steelworkers (Local 665) and the International Brotherhood of Electrical Workers (Local 1861). Most of the mill’s employees have been laid off.

As of December 31, 2011 the company is up to date with its contributions to its employees’ defined contribution pension plan.

The mill’s 4 executives (Wolfgang Gericke, Taras Sawula, Russell York, and Aaron Blazina) are employed by Buchanan Sales Inc. and will continue to perform various executive functions at the mill central to the sales process. The court has approved Gericke’s request that Terrace Bay Pulp reimburse Buchanan Sales Inc. for their services at rates of $75 to $100 per hour.

Terrace Bay Pulp has received financing from Callidus Capital Corporation and the province of Ontario for its operations. All amounts owing to Callidus have been repaid.

The province of Ontario is currently owed over $24 million and is the primary secured lender for Terrace Bay Pulp.

The Computershare Trust Company of Canada is the trustee for a promissory note of $30 million owed to unsecured creditors’ claims from the company’s last restructuring.

The Township of Terrace Bay is owed $571,000 in deferred municipal realty taxes.

Thunderpine (a party related to the Buchanan Group) has four liens registered against a piece of equipment (a Komatsu Wheel Loader) owed by Terrace Bay Pulp and repaired by Thunderpine.

There are $9.2 million of construction lien claims registered on the mill’s property. The company plans to pay for many of these claimants from funds they will be receiving from Natural Resources Canada through the Pulp and Paper Green Transformation Program in connection with two capital investments underway at the mill to reduce emissions and improve biomass power generation. (The court has granted the company permission to complete these projects by their March 31, 2012 deadline).

$432,000 is owed to other members of the Buchanan Group for the supply of goods and services.

If a going concern sale is not completed, the mill will owe its employees severance and termination payments.

Certain members of the mill’s management team have been charged with Occupational Health and Safety Act offences in connection with an accident that occurred in January 2011. Because these employees are key to restarting the mill, their defence will be funded by Terrace Bay Pulp. The company has asked that $200,000 is put towards the legal counsel of these employees. The explosion on October 31 is still under investigation.

Insurance of the mill expires on January 31, 2012. The company is currently working towards an insurance claim to replace and repair equipment damaged by the October 31, 2011 explosion.

The company plans to sell its existing pulp inventory for cash flow during this period of creditor protection.

Sales Process

The court has permitted Terrace Bay Pulp to lay off or terminate the employment of any of its employees, as well as downsizing or permanently close the mill. Terrace Bay Pulp has been authorized by the court to sell its assets or shares before April 16, 2012. At this time, Terrace Bay Pulp projects it will run out of cash by the end of April.

The company is now soliciting non-binding letter of intent from interested bidders by February 15, 2012. The letters of intent will be considered by the company, the monitor, and the province of Ontario, who will limit the bidders to a list of qualified bidders.

All qualified bidders will be notified by February 17, and will be invited to tour the facility and meet with management, labour unions, and representatives from the province.

All final offers will be due on March 16. One qualified bidder will be selected as the potential purchaser by March 19. The sale should be concluded by April 16.

Terrace Bay Pulp would like to sell the mill as a going concern, and is prepared to maintain heat and basic operations at the mill to keep the mill from deteriorating, but will consider purchase offers from liquidators.

If a sale is not concluded by April 16, the company will be required to use whatever cash it has left to completely shut down and decommission the mill.

Golf Course and Lake Front Property

The company’s assets that are not used in connection with the operation of the mill, including a golf course and certain lake front real estate, will be marketed. Their sale will be subject to court approval.

Previous Financial Problems

This isn’t Terrace Bay Pulp’s first period of creditor protection.

Terrace Bay Pulp previously filed for creditor protection on March 11, 2009, and emerged from those proceedings on September 15, 2010.

The mill was idle from February 23, 2009 until October 4, 2010.

About the Mill

The Terrace Bay Pulp mill was constructed in 1948 by the Kimberly-Clark Corporation.

Neenah Paper acquired the mill from Kimberly-Clark in 2004.

Currently Terrace Bay Pulp is a wholly-owned subsidiary of Lucky Star Holdings Inc. and is one of several companies in what is sometimes referred to as the Buchanan Group. In 2006, the Buchanan Group acquired the mill from Neenah Paper.

The mill is capable of producing various blends of northern bleached softwood kraft pulp and northern bleached hardwood kraft pulp, together with certain other byproducts.

The mill has two full integrated pulp lines, and three integrated pulp machines, with a rated capacity of approximately 550,000 air-dried metric tonnes of pulp per year (hardwood and softwood combined).

Source:
Ernst & Young