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Usually, that's where the story ends. The property would go to auction, and creditors would fight over the pieces, emerging with pennies on the dollar. Hundreds of jobs would be lost. The mill's skeleton would loom over the town, a sad, and possibly environmentally disastrous, reminder of Maine's once-proud manufacturing base.
That's not what happened. Today, the mill is up and running, in the black, with 360 workers back on the job. What's more, there's an expensive upgrade under way, and another major investment in the works. Lincoln Paper and Tissue commemorates its first anniversary in May with a company-wide party
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"We're celebrating what everybody had to do to get here," says CEO Keith Van Scotter. "We want people to feel good about what they've done. Plus, I like to confound the skeptics."
Despite the mill's early success, skeptics remain. Most restarted mills don't make it. But May brings another big confidence boost to workers, management, and observers-ironically, in the form of another shutdown. Lincoln Paper and Tissue is spending about $5 million to rebuild its pulp mill, cutting pulp operations for 18 days.
"That's a big commitment," says 15-year mill veteran Dennis McComb, the company's environmental and safety manager. "It's a long time to go down, a lot of money, and a lot of major work. The confidence here is high, because the leaders are willing to invest in these upgrades."
Van Scotter and CFO John Wissmann are hoping to do even more. Soon they hope to announce a $30 million expansion plan to double the mill's tissuemaking capacity with a new production line, a bold strike at long-term success. Van Scotter and Wissmann spent months working to finalize the financing by May, so construction could begin this year.
"I'm cautiously optimistic," Wissmann says. "If the economy stays strong, and we can execute this major rebuild, and continue getting more and more efficient, we're going to be just fine."
Lincoln Paper and Tissue, North America's smallest kraft paper mill, survived for several reasons. Lincoln's products, tissue paper and uncoated free-sheet paper, the latter used primarily for business reply cards and subscription cards found in magazines, fill a niche in the market. Two costcontrolling measures also help. The on-site pulp mill allows the company to produce most of its own pulp, a key raw material. Plus, Lincoln generates 40% of its own energy by converting process waste products into electricity.
Wissmann and Van Scotter didn't set out with the intention of buying the mill. Both were brought in as consultants by Connecticut-based Fisher International, a management firm hired to advance the sale. The duo realized a restart could work, on paper. But as the case wound its way through bankruptcy, the town rode a roller coaster of emotion, spirits rising and falling as potential deals sparked or died. In March, a Massachusetts firm's bid fell through, leading to an abandonment filing. That's when First Paper Holding Corp., led by Van Scotter, Wissmann, and Fisher president Rod Fisher (who ended up a key investor), decided to try to buy the mill.
Gov. John Baldacci stepped forward with $90,000 in state funding to keep the mill-and Eastern Fine's Brewer operation-heated through the end of the winter, preventing devastating and potentially hazardous damage. When First Paper needed to complete its financing package, Baldacci helped bring in loans from the Finance Authority of Maine, the U.S. Small Business Administration, and Bangor-based Eastern Maine Development Corp., with additional interim financing from Key Bank.Those three loans, which average about $1 million each, and a revolving line of credit from Textron Financial, were the final touches on mostly private equity financing, led by ING Prime Rate Trust, an Eastern Fine creditor.
In late April, representatives and lawyers for 30 or more parties packed a Portland courtroom to hear from First Paper. The various creditors came to the table, Van Scotter says, for one reason: Everyone stood to make more money if the mills restarted successfully. Still, the $23.7 million deal fell short of what several parties wanted.
"Ultimately, we had to stare them down and say, 'This is all we can afford to give you,'" Van Scotter says. "I think if somebody would've had deep pockets and tried to come in and do a restart, the deal would not have come together. Everybody wanted more, more, more. But this was all we could do, and we were the only ones who would do it."
It was all or nothing, and the deal went through. Lincoln Paper and Tissue, LLC, was born. The new management made a similar point with workers: Some changes would have to be made for it to work. The union agreed to a six-year labor contract that allows job flexibility, a key to improving the mill's efficiency. The old contract often limited what workers could do.
"We took away some of the walls," Wissmann says. "In the past, if you needed an area painted, you might have had six guys sitting down because they're machine tenders who don't paint. Then millwrights come in to paint, sometimes on overtime. Now, the machine tenders can pick up a brush and paint."
The CEO and the CFO say the workers have been enthusiastic, hard working, and understanding. Workers say they appreciate the new leadership's willingness to communicate when issues do come up.
"We had to make some adjustments, but as far as I'm concerned, it's been for the best," says Jeff Gifford, a 41-year veteran of the mill who now serves as fire inspector. "It's a heck of a lot better than the alternative."
The Brewer mill did die, of course. The city hopes it will be reborn as a mixed-use development, but it didn't make it as a paper mill. The mill was losing about $5 million a year, according to Wissmann, and its business model just didn't work. Brewer's products lacked the niche qualities of Lincoln's. Eastern Fine also didn't have a pulp mill, wasn't as efficient in generating power, and didn't send products to market as efficiently. Lincoln produces to order, selling large lots. Brewer produced in advance, warehoused products, and sold them in smaller batches.
"Even if you restructured the workforce and tried to optimize everything, you just kept coming back to zero," Wissmann says. "We tried hard to figure a solution for Brewer. We tried to bring in a potential partner that
would take it over for almost no investment, but we couldn't get there, either."
They're hoping to get there-achieving long-term success, and even growth-in Lincoln. In a capital-intensive business, the company constantly struggles to gain efficiency, all while trying not to spend too much money on repairs that don't bring back returns. Costs for energy, pulp and fiber, and chemicals hit record highs with the restart, and remain high. The mill's small size limits profits, and its remote location increases transportation costs. Fortunately, in this cyclical industry, product pricing has been strong.
In January, Van Scotter announced the mill was profitable for its first fiscal year, but only after interest, taxes, depreciation, and amortization. Unexpected and historically high rates of equipment breakdowns, combined with cost issues, hurt earnings. Still, the announcement that the Lincoln mill was "in the black" was statewide news.
"I'm glad we got to where we did," Wissmann says. "But I'm also disappointed we didn't get further. It's like settling for a field goal. We were driving, and everything was going well, but the input costs and the mechanical failures kept us from scoring a touchdown."
Still, they didn't get shut out. The mill closure had hit the town of Lincoln hard, hurting businesses and threatening town services. Lincoln had just recovered from losing a quarter of its downtown business district in a 2002 fire when the mill closed. The mill restart was the new beginning residents needed. Gifford, the mill's fire inspector, who doubles as chairman of the town council, sees "a lot of investment going on in town, and more in the works" since the mill starting humming again. Last fall, Van Scotter was the marshal of the town's homecoming parade, the latest in a string of awards and honors the company has won.
"It was pretty sad to drive down Main Street when the mill was closed," says Pat MacEachern, Lincoln Paper & Tissue's utilities recovery manager. "When the mill shut down in 1968 (another bankruptcy), this place became a ghost town. The town appreciates what these guys have done."
Restarting was a business decision. Neither Van Scotter nor Wissmann came to Lincoln looking to buy a paper mill. They ended up being the only two people who could-and would-save it. Both have found unexpected rewards. Letters, cards and emails of thanks have flooded their offices, and people have stopped both men in the street for thank-you hugs.
"We do want to make money," Van Scotter says. "But there are not very many times in your life that you can step in and help some people.
"John, in moments of hyperbole, will say that we saved Lincoln. We didn't, but we did put 360 people back to work at family-wage jobs. That's a pretty neat feeling."
