Fraser to hear on extension ruling
Published Thursday October 22nd, 2009
Forestry: Fraser Papers Inc. affidavit reveals above average sales numbers
Despite poor markets forcing downtime at facilities and funding shortfalls putting Fraser Papers Inc. into bankruptcy protection, the firm's sales figures this year are modestly better than the industry average.
An affidavit filed by CEO Peter Gordon this week in an Ontario court says sales volumes from the company's two paper mills from January until the end of August are seven per cent better than industry-wide figures.
The results, while an improvement over some of the company's competitors, are15 per cent lower than the firm's paper sales for the first eight months of last year - no reason to celebrate.
The company will hear from a Toronto judge today whether its application for a second extension of creditor protection - this time until Dec. 4 - will be granted.
Based on lower demand for paper, the company's printing operations in Madawaska, Maine, and Gorham, N.H., operated at a combined 88-per-cent capacity during the calendar quarter immediately upon filing for protection in June.
"Operating at any rate than full capacity at manufacturing facilities with high fixed costs has a detrimental impact on profitability and cash flow," Gordon writes.
"By way of example, during the three-month period ending Sept. 30, 2009, the applicants (Fraser Papers Inc. and related companies) estimate that market-related downtime at the two paper mills had a negative cash impact of (US)$4.4 million."
"The economic slowdown in North America continues to significantly impact the demand for all grades of paper," Gordon writes.
The executive's commentary is in line with numbers from the Montreal-based Pulp and Paper Products Council, an international alliance of product associations serving the pulp and paper industry.
According to the group's chief economist Paul Leclair, demand for printing and writing papers across North America was down 22 per cent for the first eight months of 2009.
"The decline really started at the end of 2008, when the whole markets went down," Leclair said in an interview. "The whole thing came tumbling down," he said, adding that markets are still soft - "quite a bit."
Fraser Papers' request for an extension of creditor protection is based on a restructuring process that is incomplete to date, according to Gordon.
A labour contract at the Maine mill has yet to be secured, with the current deal expiring on Oct. 31, he says.
And the firm has yet to reach an agreement with pension plan beneficiaries to address the pension liability "in a manner that does not impact the opportunity for a specialty papers business to be preserved."
The company also wants a better deal with NB Power for electricity the firm sells the utility from its Edmundston cogeneration plant.
Management has pitched to the firm's creditors that restructuring would mean creating a separate company to oversee the specialty paper business in Madawaska.
The firm's Edmundston complex - typically served in part by lumber from the company's Plaster Rock sawmill - produces sulphite and groundwood pulp used at the stateside Madawaska mill.
The executive writes that the company has been discussing the idea of a separate paper company with its secured creditors - Brookfield Asset Management Inc., CIT Business Credit Canada Inc. and the New Brunswick government - which were owed more than $100 million at the time of creditor protection.
Brookfield and CIT Business Canada have agreed to provide up to US$44 million during restructuring, with the province pitching in C$9 million in debtor-in- possession financing to finish the Plaster Rock sawmill modernization - now complete.
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