Lincoln Paper and Tissue escapes the deep freeze.

January 2004 was cold in more ways than one in Lincoln, Maine. In addition to the typically frigid winter weather, the town's paper mill, Lincoln Pulp and Paper, had shut down on January 23, leaving hundreds of people out of work. It looked like the mill might suffer the same fate as many aging pulp and paper operations in the United States--permanent closure.

The Lincoln mill belonged to a subsidiary of Eastern Pulp & Paper Corp., Amherst, Massachusetts, a privately-held company that had declared bankruptcy in September 2000. While the company had operated in Chapter 11 for three years, by early 2004 time had run out and the Lincoln mill closed despite being cash positive, dragged down by losses in other parts of the company. Eastern Fine Paper, a mill in Brewer, Maine also owned by Eastern Pulp & Paper, closed at the same time.

While the Lincoln mill was being kept heated, maintained, and secure by a skeleton staff of 8 people; it faced the prospect of "going cold" on a complete shutdown, which might have caused catastrophic damage to the equipment and key processes, such as the water treatment system.

Today, the mill is not only back up and running, it is adding a new machine to expand tissue production (see related article). Lincoln will start up the new Metso Paper tissue machine in the 3rd quarter of 2006, doubling its tissue capacity. The mill has a leading market position in its other main product, bulky uncoated freesheet for business reply cards and other products. The mill is back to producing 140,000 tons/year of bleached kraft pulp and converting it into 72,000 tons/yr of paper, 36,000 tons/yr of tissue, and 30,000 tons/yr of market pulp.

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So how did the mill go from being one step away from the scrap heap to expanding its operations? Keith Van Scotter, president and CEO of the re-named Lincoln Paper and Tissue LLC, explains. "In late 2003, Eastern Pulp & Paper was trying to put together a bankruptcy emergence plan. Just before the company was to hand over the keys to the company to a turnaround manager in January 2004, the company's owner reversed course and filed for Chapter 7 liquidation. This mill and the Brewer mill were shut down."

When the only bid for the company's assets was pulled back, creditors were unwilling to continue funding to keep the mill heated during the shutdown. At that point, the Governor of Maine stepped in and approved US$ 90,000 in state funds to keep both the Brewer and Lincoln facilities warm. At the same time, the bankruptcy court in Portland ruled the assets abandoned. Van Scotter, John Wissmann (now CFO of Lincoln Paper and Tissue), and Rod Fisher of Fisher International--who all had been involved in the initial plans for a turnaround management team at Lincoln--began developing a serious bid to buy the Lincoln mill.

One of the creditors from the Eastern Pulp & Paper bankruptcy, ING Prime Rate Trust, agreed to invest fresh capital in the new Lincoln Paper and Tissue. The partners were also able to secure loans from the U.S. Small Business Administration, the Finance Authority of Maine, and Eastern Maine Development Corp., as well as other financing. As part of the deal, the group obtained rights to equipment from the Brewer mill.

Finally, on May 28, 2004 the new management group completed the $23.7 million acquisition. "It was a very complicated deal, as many bankruptcies are," recalled Van Scotter. "There were many parties to the deal. Add to that the fact that the bankruptcy judge had declared the mill to be abandoned, which created many other legal complications. But since we had a viable plan for Lincoln, ING agreed that they would be better off investing new money in the hope they would get some of the old money back. We took a note for some of the old money, and borrowed new money from ING."

Another challenge was that, in order to get the sale order entered, the judge stipulated that all 30 parties with standing in the bankruptcy had to agree to it by formally approving the plan. That occurred on April 30, and the deal closed four weeks later.

GETTING STARTED

Prior to the closing, the new ownership/management team was already developing startup plans. "We had sales people calling on customers, so by the time we actually closed the deal we had firm orders for both card stock and tissue," said Van Scotter. "On June 3, we restarted the first tissue machine, Number 7. We did some pulp mill maintenance, and on June 16 we restarted the pulp mill, the Number 6 tissue machine, the Number 4 paper machine, and the pulp dryer. We then took a short breather and then on July 6 we restarted the last paper machine, Number 9. In 2004, paper markets and tissue markets were fairly strong, so we had orders to start up. We hit the ground running and haven't looked back."

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While the new management team and the entire employee group were elated, many people were taking a "wait and see" attitude about the mill. "People in the State of Maine were in two groups when it came to us restarting the mill: skeptical but supportive; and skeptical and nonsupportive," said Van Scotter. "Everyone was skeptical given the track record of the industry and the prior company. But the more we worked on the plan, the more we were convinced that there was something special here."

GOOD PROSPECTS

Despite having been through a "near death" experience, Lincoln's prospects are good, according to Van Scotter. The new management team believed that Lincoln had always been viable as an independent pulp and paper mill because of the nature of the products, the equipment base, and the mill's intellectual property.

"Once it was freed of the high overhead associated with being part of a corporation and in a division with another mill that was losing money, we believed Lincoln would be cash positive," said Van Scotter. "The downside, of course, is there was plenty of deferred maintenance, so we knew coming in that we would have to invest in the mill."

Another positive has been the attitude and commitment of the mill's labor force. The workers who returned to the mill have a "whatever it takes" attitude, said Van Scotter. "I have worked in this industry for 27 years," he said. "I've worked in nonunion mills and I've worked in union mills. I've run two mills. I've worked in corporate offices. In all of those situations, I've never seen one like Lincoln, where a dedicated group of people has a focus on 'we'll do what we have to do to make this business survive.' They've been through the crucible of bankruptcy and tough times, and they know how to get things done without spending a lot of money."

To re-hire some workers, Lincoln Paper and Tissue had to recruit some who had found other jobs in the interim. "Our people are so good that a number of them were picked up very quickly," said Van Scotter. "One person was with a bigger company in another part of Maine. When he saw how much fun we were having at the mill, he came back. We had people who were all the way out the door and we had people that had one foot out the door, but we brought them back largely because they had an attachment to the mill and a belief that this was a good business."

Lincoln reduced its headcount from about 490 prior to the bankruptcy to 360 after the startup. The company negotiated a new six-year labor agreement with the union that emphasizes job flexibility. In terms of sales dollars per employee, the mill's productivity numbers today are equal to much larger mills with more modern equipment, according to Van Scotter. "I'm a strong believer in complete flexibility," he said. "If you can perform a job safely and have the skills to do it, there should be no artificial barriers to prevent that. The people at Lincoln have proven that."

One thing that has changed at the mill is its culture, said Van Scotter. Prior to the bankruptcy, the mill had a more traditional culture where operators did not have decision-making responsibility. That culture is changing rapidly at the new Lincoln. "We are a lean organization, so the people doing the job must be able to make decisions about the job," said Van Scotter. "That means some people have had to carry some heavy responsibilities. Any organization in transition has to face those realities; no company in today's economic environment has the luxury of having enough people."

PRODUCT RANGE

Another reason for the successful rebirth of the Lincoln mill is its narrowly focused product lines. Lincoln Paper and Tissue supplies truly unique products that allow it to avoid commodity markets and focus instead on value-added, niche markets. "We weren't looking at changing the customer base; we basically went back to customers that wanted our products," said Van Scotter. "There is a relatively limited group of suppliers for these products."

To that end, Lincoln targets three different markets:

Premium quality business reply card (BRC), index, and vellum bristols used by printers and magazine publishers primarily for mailing applications (production of 210 tons/day). Lincoln says its BRC stock is the brightest white on the market, achieving superior performance at a lower basis weight than typical reply and insert card stocks. Its BRC stock features an 8-10% higher yield, bringing customers significant savings in raw materials, freight and postage. For example, the mill can produce high bulk BRC stock in a 73 lb, product while competitors must make a 78 lb. product to get the same bulk required by the U.S. Postal Service. This product is created with 50% recycled content (from sawdust) using an ECF oxygen bleaching process, and the mill's BRC papers meet or exceed all U.S. EPA guidelines for recycled content.

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Deep-dyed tissue, used by party goods producers, airlines, and food service companies to create napkins, towels, table covers and other specialty tissue products (100 tons/day). Lincoln also manufactures specialty tissue stock for health care products such as medical draping, disposable gowns, and beauticians neck strips, and for industrial applications including electrical tissue. Lincoln's colored tissue products have "ultra-reliable" color uniformity, product consistency, and printability, according to the company. Created using a patented bonding process, Hi-Ply[R] tissues are offered in standard and custom colors ranging from pastels to ultra deep shades. Tissue grades run from napkin stocks to wet strength toweling, to industrial specialties, with stretch capability ranging from 4% to 100%. Tissues are available in up to 4 bonded or unbonded plies.

Bleached kraft pulp (BKP), ideal for soft tissue papers, printing and writing papers, and paper where significant recovered fiber and oxygen bleaching are selling points. The market pulp component of the mill's production is variable, and the new tissue machine being installed will consume a large portion of it. Lincoln's unique pulp is produced from a blend of hardwood chips and recovered sawmill sawdust, shavings, and pinchips, creating a virgin pulp with high recovered fiber content (the sawdust is classified as recycled fiber). The dominant hardwood species in Lincoln's BKP are maple, beech, and birch. The dominant softwood species are spruce, hemlock, fir, and pine. Softwood blend percentages range from a 35% minimum to a 55% maximum. The pulp is bleached with a modified ECF process with oxygen as the primary agent, delivering a brightness of 86-88%.

ENVIRONMENTAL PLUS

One of the mill's major advantages is its unique processes, such as using large amounts of sawdust in the pulping process and its proprietary bleaching sequence, both developed under the former owners.

"We have a very competitive environmental platform from a kraft pulping and bleaching standpoint, and it was installed for about 10% of the price of comparable systems," said Van Scotter. "It's a unique bleaching sequence that allows us to be a lower cost producer. Also, using sawdust provides product quality benefits, such as higher bulk without the use of certain additives. There are competing uses of sawdust out there and we actually had to work hard to get the supply back after we restarted the mill."

While Lincoln Paper and Tissue is an older mill, key parts of the process have been upgraded, keeping the mill competitive. The mill's pulping and bleaching systems are relatively new and the mill's recovery boiler was extensively rebuilt in May 2005. The mill's paper and tissue machines have not been rebuilt, but the mill is installing a new tissue machine in 2006 (see box above).

ONE STEP AT A TIME

Lincoln Paper and Tissue has accomplished a great deal in the 18 months since restarting operations, with more to come. Building a sustainable future is high on the list of priorities. "We are still putting one foot in front of the other," said Van Scotter. "In the space of a year and a half, we've purchased a mill that was down cold; rebuilt the customer base, and restarted the mill. We also took on the biggest outage in the history of the pulp mill in May 2005 to rebuild the recovery boiler and do an enormous amount of work on the paper machines and other equipment.

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"We've also put together plans to refinance the mill and plan the installation of a new tissue machine," he continued. "There has been no grass growing under our feet. As we look down the road, we know there are many things we can do that will solidify the future of this special mill."

ABOUT THE AUTHOR

Alan Rooks is editorial director of Solutions! magazine, the official publication of TAPPI and PIMA. Prior to joining Solutions!, Rooks was the editorial director of PIMA's Papermaker. Contact him by phone at [phone], or by email at [e-mail].

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ALAN ROOKS, EDITORIAL DIRECTOR

WHAT YOU WILL LEARN:

* How Lincoln Paper and Tissue emerged from a difficult bankruptcy process.

* The unique features of the mill that contribute to its success.

* The mill's plans for expanding tissue production.

ADDITIONAL RESOURCES:

* "Back to work," by Mike Woelflein, Bangor Metro, June 2005, pp. 17-21. (email to [e-mail]).

RELATED ARTICLE: LINCOLN TO INSTALL NEW TISSUE MACHINE

In August 2005, Lincoln Paper and Tissue ordered a complete Advantage[TM] DCT100 HS tissue machine from Metso Paper. The tissue machine, which will start up in the 3rd quarter of 2006, will have a nominal trim width of 106 inches (2.7 m), a maximum operating speed of 6560 feet/min (2000 m/min), and a daily production of 80-100 tons of high-quality napkin, towel and bathroom tissue grades. Start-up is scheduled for 3rd quarter of 2006.

Metso Paper's scope of delivery will comprise a complete tissue machine equipped with a SymFlo[TM]-TIS headbox, PERIFORMER--Crescent forming section, a single press, a Metso Yankee cylinder, an Advantage[TM] AirCap yankee hood, Advantage[TM] Run sheet transfer technology and a reel section.

The new tissue machine is being funded through new investment capital provided by PCG Capital Partners, La Jolla, California, a private equity investment firm owned by Pacific Corporate Group LLC, a California-based investment management and advisory firm. PCG is investing US $35 million in subordinated notes and equity. Lincoln management also invested $1 million in equity in this transaction. Senior financing was provided by LaSalle Business Credit LLC.

The capital infusion will be used to expand tissue production and refinance the company's existing credit facilities. The investment gives PCG a non-controlling stake in the company. PCG will also appoint two of its representatives to the board of directors.

"It's a good fit; it's the right thing to do here," said Keith Van Scotter. "I think the epiphany we had was when John Wissmann and I went to Tissue World in Miami in October 2004, and we were approached by a number of converters and brokers asking if we would sell them tissue. We've been sold out almost from day one; we can't make any more. We knew then that the right fit was to install another tissue machine here."