Cate Street Capital's purchase for Katahdin paper mills underway, as state officials hope to complete deal by end of day; Cate Street VP fears 21-day notice needed for environmental permits may hinder deadlines for orders

Kendall Sinclair

EAST MILLINOCKET, Maine , September 16, 2011 (Bangor Daily News) – State officials said they hoped that by late Friday a New Hampshire-based investor would buy two shuttered paper mills for an undisclosed price, re-employing several hundred millworkers.

“They have the [final] paperwork in front of them right now,” Adrienne Bennett, spokeswoman for Gov. Paul LePage, said Friday.

As of 5 p.m., deal makers were still at work, Bennett said.

Cate Street Capital of Portsmouth, N.H., announced Thursday that it would close the undisclosed sales deal in escrow with present mills owner Brookfield Asset Management as soon as possible. Both sides and state officials worked until late Thursday ironing out the deal. They had hoped to finish the deal that day.

As many as 250 workers could be hired in East Millinocket next week for an immediate restart of the mill there to help it fill orders placed for virgin newsprint, the mill’s specialty, by Oct. 30. A final closing is expected later this month, with the Millinocket mill’s restart dictated by market conditions months later.

As many as 500 workers could be hired at both mills.

Cate Street Senior Vice President Richard Cyr, CEO of the new Great Northern Paper Co. LLC., said that the frenetic pace of the deal’s final days wouldn’t let up much once the company assumes ownership of the mills.

“We have a long road, six weeks, ahead of us,” Cyr said. “I really need to ensure that the people who come to work understand that their success is tied to ours, and vice versa, and we need to fulfill orders by Oct. 30.”

For LePage, the deal likely would be his biggest single economic achievement since assuming office, though the effort began under Gov. John Baldacci.

East Millinocket’s Board of Selectmen secured a property tax arrangement with Cate Street on Friday setting the mill property’s value at $30 million, board Chairman Mark Scally said. Cate Street officials approved the deal Friday morning.

East Millinocket will get $700,000 and Millinocket will get $900,000 annually in property taxes under their deals with the new Great Northern. More tax deal details will be released as soon as signed paperwork is returned, Scally said.

East Millinocket’s tax arrangement with Cate Street “will remove uncertainty,” Scally said Friday. “We already built our budget on a $30 million valuation [from Great Northern]. With the fear of abatement beginning to go away, that means now the budget we do have planned can be carried forward without further cuts.”

Town officials set their budget months ago, gambling that the valuation would be accepted by Cate Street.

The company also said it plans to invest $20 million to $25 million in the East Millinocket plant.

“I will feel a lot better when we have paper on the water come Oct. 30. That is when I will be celebrating,” Cyr said Thursday. “From there on in, it will be business as usual.”

When Brookfield closed the East Millinocket mill in April, it employed as many as 450 workers. With the Millinocket mill’s closure in September 2008, which idled another 150 people, the shutdown pushed the region’s unemployment rate to an astronomical 21 percent and marked the first time in a century that the region — once one of the nation’s paper capitals — had no paper manufacturing and no great odds favoring its resumption.

State officials’ one serious prospect for revitalizing the mills, San Francisco-based Meriturn Partners, walked away from a potential deal on April 8, and Brookfield twice extended its deadlines for scrapping the mills to allow state officials time to find another suitor.

Workers and local leaders have done their part to restart the mills once Cate Street’s negotiations with state and Brookfield officials became public. East Millinocket mill union workers voted overwhelmingly Wednesday night to accept a five-year contract paying them the same wages they received from Brookfield subsidiary Katahdin Paper Co. LLC, and East Millinocket and Millinocket town leaders voted Tuesday to tentatively approve property tax deals with Cate Street.

State legislators also helped the mills’ sale in June by voting to approve buying a contaminated mill landfill in the Dolby section of East Millinocket that was seen as a major obstacle to any purchase.

The largest remaining hurdle to the deal’s closure, Cyr said, is the mills’ environmental permits. By state law, changes in permits require 21 days notice, which would imperil Cate Street’s deadlines for orders. State and Cate Street officials see the public notice period as nothing more than an “administrative issue,” but the Maine Attorney General’s Office has resisted giving any sort of guarantee to Cate Street that the permitting process would end successfully.

Perhaps understandably, the AG doesn’t favor “giving [Cate Street] protection over somebody else’s environmental position,” Cyr said.

Cate Street and state officials thus have found what they believe will effectively work around the permitting process. Closing in escrow would allow the company to restart East Millinocket’s mill until the time period elapses and the deal can be closed fully.

“It’s a little bit of a risk for us, but it is a reasonable risk to take,” Cyr said. “If we don’t take the risk, we might as well” not bother.

But the environmental issues might not end there. Attorney Sean Mahoney, vice president and director of the Conservation Law Foundation of Maine, said Thursday that the most significant issue within the legal wrangling over the permits could be the disposition of the Dolby landfill.

The current owner of the mills, Katahdin Paper, he said, appears to need a waiver of liability associated with the landfill that would involve the state assuming a liability of more than $17 million in landfill closure costs before the deal will occur.

If Katahdin Paper does need a waiver, Mahoney said, then under the Maine Constitution, the state must get two-thirds approval from the Legislature and majority approval from the electorate for a bond covering the purchase costs before the state can legally assume ownership of the landfill. Both are likely impossible to achieve by Sept. 27, the Cate Street deal’s final closing date.

“As far as we can tell, nobody’s looking at this,” Mahoney said.

His group’s letters to the Maine Attorney General’s Office and the Legislature have gone largely unanswered, Mahoney said.

“That either means that the governor’s office doesn’t think our argument has any merit or that nobody’s thinking of this,” he said. “We just haven’t heard anything.”

Bennett and Cate Street spokesman Scott Tranchemontagne declined to comment on Mahoney’s concerns.

Under its tax deal, East Millinocket officials have agreed to decide on a TIF with Cate Street by Oct. 15, Scally said. Town leaders hope to set an initial meeting to discuss the TIF within two weeks.

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.