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Future of Gorham mill remains up in the air

Counsel RB goes shopping for Wall Street buyer

April 14, 2011
PORTSMOUTH — John Halle, president of Cate Street Capital and the head of Gorham Paper LLC, said in a telephone interview on Thursday afternoon that his company is no longer the only one that wants to purchase the paper mill in Gorham from Counsel RB Capital LLC.

Lynn Tilton, founder and CEO of the New York-based private equity firm Patriarch Partners, has worked out an exclusive arrangement with Counsel RB Capital LLC that gave her two weeks to decide whether or not to purchase the shuttered mill.

Tilton's firm has invested in the formerly shuttered pulp mill in Old Town, Maine, which is operating under that name of Red Shield, Halle said. Red Shield could supply its pulp to the Gorham mill if Tilton bought it, reintroducing a form of vertical integration.

Counsel RB Capital has set Friday, April 15, as the Patriarch Partners' deadline.

The Gorham mill has been closed since November with the bulk of its 240 employees laid off. Cate Street, a private equity firm that has raised over $6 billion in the last 15 years to finance more than 40 projects, put down a deposit when they signed a Purchase and Sales Agreement (PSA) indicating its intention to purchase the mill and adjacent acreage. Cate Street announced at the end of February that it plans to reopen the mill and invest $60 million, of which $20-plus million would be used to purchase a tissue machine. That machine would be used to produce toilet paper and hand towels for which there is a strong market in New England, Halle explained. Asian paper companies have a tough time making money producing and shipping this kind of high bulk, low weight product to the United States, he said.

Recently, all communications and negotiations have broken off with RB Capital, however, Halle explained. The seller secured an agreement from the State of New Hampshire that exempted it from having to assume future environmental cleanup costs in return for its pledge that it would make a good-faith effort to find a buyer willing to operate the mill.

The "brownfield" is in surprisingly good shape now, but dismantling the mill and opening it up to rain and snow would almost certainly send pollutants, including various oils, into drains, resulting in the need for a costly cleanup. It is this hazard that makes having that kind of waiver arrangement with the state an essential, he said.

Halle said, however, that because the prices the various metals that could be salvaged at the mill are rising rapidly, it appears that Counsel RB Capital's incentive for making the detailed preparations necessary to sell the mill have fallen.

"They didn't do the work to get ready for a closing; there is title work still to be done," Halle said. "We'd love to close (the deal), but Counsel RB Capital has to get their work done." Meanwhile the firm has apparently opened up negotiations with Tilton and Patriarch Partners.

Tilton is currently embroiled in an ongoing controversy with "Forbes" magazine that is readily available to Internet readers. The businesswoman who has made a fortune as a turnaround specialist includes this complaint in her rebuttal letter to the editor of Forbes: "Instead of focusing on the unique strategy I and my company employ to turn around distressed companies and our remarkable success at doing so which has preserved thousands of (manufacturing) jobs, it is clear that you had an editorial agenda driven by sensationalism and a desire to discredit a successful private equity firm and its owner."

Halle also pointed out that the ability to run the paper mill profitably hinges on being able to bring landfill gas from the Androscoggin Valley Regional Refuse Disposal District (AVRRDD). The seller must be able to deliver legal documents that delineate, describe, and nail down the needed easements and ensures that the existing bridge spanning the Androscoggin River remains available and intact so it can support the gas-line.

Halle has only praise for the job that executive director Sharon Gauthier has done to keep a disparate group of stakeholders focused on this important project which plant manager Willis Blevins has testified is essential to the mill's long-term future viability.

An easement is also needed from Brookfield Renewable Power, Inc. But in order for that company to grant an easement, however, permission from the Federal Energy Regulatory Commission (FERC) would have to be secured. That step is not simple, because notice would have to be given to a number of state and federal agencies.

"There are just a boatload of details: title records, easements and permits," Halle explained. "This property has been used for industrial purposes since the late 1880s, and it's considered the tenth worst deed in New Hampshire. The title policy alone is 11 pages long,"

When Gov. John Lynch learned about these hang-ups, he called together some 17 people — stakeholders and representatives of local and state agencies — last week at the State House to try to work everything out.

Gov. Lynch is a good leader, Halle said, and was able to get more done in two hours than had others had been able to do over in the previous 60 days, which he characterized as attorneys wrangled with one another.

Halle said that Department of Resources and Economic Development (DRED) Commissioner George Bald should receive the Most Valuable Player award for his ongoing commitment, patience and persistence.

"The gas-line and FERC permit problems really are not that bad," Halle said. "By the end of the day, there was really very little missing."

Halle explained that the Gorham mill's management team led by Blevins is highly skilled and dedicated as is the union leadership, made up of hard workers. He anticipates that if Cate Capital becomes the mill's new owner, then this management team would rely on vendors with whom they already have relationships.

The paper mill's still-intact sales force is also top notch, Halle explained.

Cate Capital is ready to invest a total of $313 million in its Laidlaw-Berlin project. Halle said he is very impressed with the quality of the skilled managers and workers and the potential of co-location of synergistic companies at both the Gorham and the Berlin sites.

The next step in moving the Laidlaw project forward is scheduled at 9 a.m. on April 22 when that state Site Evaluation Committee (SEC) will meet to consider a request to transfer and amend an already-issued Certificate of Site and Facility at what is now called the Berlin Station. This would include amending the Certificate to permit the facility to produce 75-megawatts of electricity without consuming any additional chips in its wood-burning boiler.

"I've spent more time on the Gorham mill project than I ever imagined," Halle said. Six people have been working nearly full-time on trying to work things through on the Gorham mill. But, Halle explained, the people he has met have made him become emotionally involved in the future of Berlin-Gorham. He now understands, he said, that if he and his investors turn a profit from their investments then they would have an obligation to give back the area.

The Androscoggin Valley has an aging workforce, he noted, and it must be able to keep its young people in the region by ensuring that they will have good opportunities if they stay. Halle said, "We expect to work with the schools and to be good neighbors."

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