Lincoln Paper and Tissue has found a company willing to place an opening bid of $5 million in the upcoming auction for the bankrupt paper mill’s machinery.
In court documents filed Thursday, the paper mill said it signed an asset purchase agreement this week with LP Acquisitions LLC, a subsidiary of Reich Brothers, a company with offices in New York and California that specializes in the “acquisition and disposition of distressed and surplus assets,” according to its website.
The asset purchase agreement requires the Reich Brothers’ subsidiary to provide an opening bid of $5 million for the mill’s paper machines and other physical assets. That price does not include the buildings or land.
Lincoln Paper, which filed for Chapter 11 bankruptcy on Sept. 28, marketed its assets to more than 150 other parties and entered into 36 nondisclosure agreements with interested parties before selecting Reich Brothers as what’s known as the “stalking horse” bidder. In bankruptcy cases, a “stalking horse” is selected to prevent a low-ball offer from winning the bankrupt company’s assets.
The paper company and its investment banker, SSG Capital Advisors LLC, expect other interested buyers will participate in the auction, which has been tentatively scheduled for Nov. 10. Per the purchase agreement, if the bankruptcy court accepts a “higher or better” offer than Reich Brothers’ opening $5 million bid for the mill’s assets, Reich Brothers will receive a $175,000 breakup fee.
Federal Bankruptcy Judge Peter G. Cary approved the purchase agreement and bid procedures at a hearing Friday morning in Portland, according to Keith Van Scotter, president of Lincoln Paper.
The mill is still operating as it works through the bankruptcy proceedings. Cary on Friday also reapproved Lincoln Paper’s “debtor-in-possession” loan, a $6.6 million loan secured from its existing lender, to allow it to continue operating the mill during the bankruptcy.
“The important message is we got financing to continue operations,” Van Scotter said.
Because the bankruptcy court’s responsibility is to liquidate assets and return as much as it can to creditors, there’s no promise that it will remain a working paper mill after the auction, but Van Scotter said “the chances are very high that it continues to operate.”
If Reich Brothers is the ultimate purchaser of the mill, it could turn around and market the mill to other paper companies or sell the machinery for scrap. But the tissue market, unlike the paper markets that were served by the recently shuttered paper mills in Bucksport and East Millinocket, is robust enough that Van Scotter believes a paper company would find value in operating the mill.
“I think this mill has a reason to exist, so regardless of who ends up winning it after the auction, I think they will seek to operate it themselves or sell it to somebody who will continue to operate it,” Van Scotter said. “That’s just my opinion.”
Reich Brothers also has experience flipping a paper mill to another operator. It purchased the paper mill in Gorham, New Hampshire, when it was in financial straits and turned around and sold it to New York-based Patriarch Partners LLC in 2011. Gorham Paper and Tissue continues to operate.
The Lincoln mill currently employs 170 people. At the time of its bankruptcy, Lincoln Paper owed more than $10 million to more than 200 creditors, according to court documents.