Part 1 of this two-part series examined the corporate empire behind Paper Excellence Canada and the Northern Pulp mill in Pictou County, which is ultimately owned by a family worth many billions. In this article, we take a closer look at the petition to the British Columbia Supreme Court by the Northern Pulp group of companies for protection from creditors, what it all means, and what it says about corporate accountability (and welfare) in Nova Scotia — and beyond.
For those who assumed that the Northern Pulp saga was over when the Pictou County mill ceased producing pulp in January this year, the company’s case for creditor protection in the Supreme Court of British Columbia may put paid to that.
In his 607-page affidavit to the BC court, Bruce Chapman, general manager of the petitioners for credit relief and “the general manager (Northern Pulp) of Paper Excellence Canada Holdings Corporation,” makes several statements that show that Northern Pulp and Paper Excellence Canada have no intention of letting the province of Nova Scotia off the hook for a series of agreements that past governments of all stripes have made in the mill owners’ favour.
Chapman also makes it clear that the mill owners expected Premier Stephen McNeil’s Liberal government to alter the Boat Harbour Act to permit Northern Pulp to keep using the lagoon for effluent until it got approval for and had time to build a new treatment facility.
In his affidavit Chapman states that the creditor protection will allow the company to discuss with the province and Pictou Landing First Nation (PLFN) “to resolve some or all of the outstanding issues.” This seems a little odd, given that the mill owners expected that the McNeil government would extend the Boat Harbour Act, which was something PLFN adamantly opposed.
Chapman can hardly be unaware of the sordid and shameful history of Boat Harbour — how lying provincial officials first obtained rights to use it for the pulp mill effluent in the 1960s, how it was despoiled and became one of Canada’s worst cases of environmental racism, how many times PLFN was promised that it would be closed and remediated to its original state as a tidal estuary and those promises were broken, how much suffering its pollution caused the community, and how valuable the lagoon PLFN called A’se’K (“the other room”) had always been to them and their livelihoods.
And yet Chapman shows himself to be oblivious to all of this when, in Item 33 of his affidavit, he writes that Northern Pulp expected the government to extend the mill’s use of Boat Harbour for its effluent:
Northern Pulp’s expectation was that the January 31, 2020 deadline would be extended if an environmental approval for the Replacement ETF was received following filing of the Focus Report. Northern Pulp’s belief was based in part on the importance of the Mill to the forest industry in Nova Scotia and its belief that the Province wished to mitigate damages from the breach of its obligations pursuant to the Agreements, which provide Northern Pulp the right to utilize the BH-ETF [Boat Harbour – effluent treatment facility] until December 30, 2030.
Chapman’s affidavit also reveals some details on how the province became the company’s second largest creditor, and what collateral secured those loans — of which nearly $86 million is outstanding.
In addition, it provides insights into how Northern Pulp’s debt to its largest creditor, Paper Excellence (which Part 1 of this series shows is an owner of Northern Pulp), was incurred.
Chapman writes that today Northern Pulp owes Paper Excellence Canada just over $163 million (close to $30 million of which is unsecured), mostly because of loans made to the company between 2012 and late 2015 by Paper Excellence companies in western Canada — Howe Sound Pulp & Paper, MacKenzie Pulp Mill, Meadow Lake Mechanical Pulp, and Skookumchuck Pulp.
Why this debt was shifted onto Northern Pulp, given that the mill had been benefitting from government loans and grants from 2011 until 2013 and producing record amounts of pulp in 2014, is not known. Paper Excellence did not reply to two emails (July 11 and July 18), which asked specifically about the loans from its western Canadian companies to its company on the east coast, which is now insolvent.
But let’s back up a bit, and look more closely at who is seeking creditor protection and from whom, and the recent history of Northern Pulp that led to it.
Northern Pulp goes to court … again
On June 15, seven companies related to the Northern Pulp mill submitted a petition to the Supreme Court of British Columbia to seek protection from creditors under the Companies’ Creditors Arrangement Act (CCAA) while they “work diligently towards the restructuring of their affairs.”
The move came a half a year after Northern Pulp had to stop producing pulp because the 2015 Boat Harbour Act prohibited the 53-year-old mill from treating its effluent — up to 90 million litres of it every day — in the Boat Harbour facility.
In spite of pressure from the company and from Unifor, the union representing 200 workers at the mill and chip plant, Nova Scotia Premier Stephen McNeil upheld his promise to PLFN and did not extend the deadline for the closure of Boat Harbour. In December 2019, Environment Minister Gordon Wilson had announced that Northern Pulp’s focus report for a replacement effluent treatment facility contained insufficient information. He announced that an environmental report was required, which could take more than two years.
That led Northern Pulp, together with Unifor and others, to apply on January 23, 2020 to the Supreme Court of Nova Scotia for a judicial review of the minister’s decision. Northern Pulp, meanwhile, said it would continue with the environmental process.
Then in May, Environment Minister Gordon Minister issued a ministerial order detailing how Northern Pulp was to maintain and manage the mill site and treat its wastewater. The province sweetened the orders with an offer to Paper Excellence up to $10 million towards the estimated $20 million cost of dealing with the effluent pipeline and former treatment facility, as long as it continued with the environmental assessment process.
In June, Northern Pulp went back to the Supreme Court of Nova Scotia to appeal the ministerial order, and said it was putting the environmental process on hold, although there is no provision for such a pause in the province’s environmental legislation.
A few days later, on the other side of the country, in British Columbia — home to the mill’s owner Paper Excellence Canada Holdings — Northern Pulp and a group of its affiliates also went to court seeking creditor protection.
The “consolidated liabilities” of the petitioners amount to $311,019,464, according to court-appointed monitor Ernst & Young that stipulates that it is relying entirely on “unaudited financial information” and the petitioners’ sources for all the information in its first monitor report. In summary, the liabilities are:
Province of Nova Scotia (secured) — $84,874,246
Province of Nova Scotia (unsecured) — $1,300,000
Paper Excellence Canada (secured) — $29,859,548
Paper Excellence Canada (unsecured) — $183,453,581
Employee related — $7,120,000
Timberlands owners — $1,353,496
Trade payables — $3,058,593
The petitioners — all said to be “insolvent” — include 1057863 B.C. Limited, Northern Resources Nova Scotia Corporation, Northern Pulp Nova Scotia Corporation, Northern Timber Nova Scotia Corporation, 3253527 Nova Scotia Corporation, 3243722 Nova Scotia Limited and Northern Pulp NS GP ULC.
The case also includes the two non-petitioner limited partnerships, Northern Timber Nova Scotia LP and Northern Pulp Nova Scotia LP.
The initial petition states that they need the period of credit relief — which currently ends July 31 — so that they can “work diligently towards the restructuring of their affairs” by, among other things:
… engaging in discussions with the Province in connection with or arising from claims relating to the closure of the Mill and exploring alternatives for re-starting the Mill …
… working with regulators from the Province, representatives of the Monitor, local First Nations groups and other stakeholders to explore potential alternative means to preserve going concern asset value and prospects for re-starting the Mill …
The initial petition also states that 1057862 B.C., incorporated in BC, “controls each of the other Petitioners, who are a group of affiliated corporate entities.”
As documented in Part 1 of this series, 1057862 BC is a subsidiary of Paper Excellence Canada Holdings Corporation. All the Petitioners are part of the corporate Sinar Mas / Asia Pulp & Paper empire of the billionaire Widjaja family.
In his affidavit, Bruce Chapman states that Paper Excellence Canada (PEC) owns a 30% interest in the petitioners, while the remaining 70% ownership is held by Hervey Investment BV in the Netherlands, which is examined in the first part of this series.
Chapman writes that “the sole director of the Petitioners and PEC is Tan Choong Wei (also known as Robin Tan),” and that “the controlling minds of the Petitioners” are all based in British Columbia. This seems to contradict Statistics Canada’s Inter-corporate Ownership catalogue for the Sinar Mas Group, which specifies that the Sinar Mas holdings in Canada — which include all the petitioners — are controlled from Indonesia.
The affidavit states that the closure of the mill and the cessation of pulp production “has had a devastating effect” on the petitioners, and that they will:
…run out of cash and access to any further capital in late July 2020. PEC and Hervey are not willing to provide further liquidity to the Petitioners under the current Situation.
Paper Excellence did not reply to emailed questions about the loans made by its western companies to Northern Pulp, which are detailed in Chapman’s affidavit and constitute the bulk of the petitioners’ debt, so it is impossible to know what — if any — “liquidity” PEC and Hervey have ever provided to the petitioners, all of which are companies they own.
The creditor protection, Chapman writes, will “provide additional time to pursue restructuring alternatives including seeking approvals required for a replacement facility” for Boat Harbour.
Just as Chapman’s affidavit presents a narrow view of who the petitioners are, making no mention of their relationship with the Sinar Mas Group, it also presents a very narrow explanation of what led the companies to seek creditor protection and a self-serving version of Paper Excellence’s own history with the mill.
Chapman claims that since acquiring the mill in 2011, PEC has spent more than $118 million towards capital improvements, including $70 million towards efforts and projects to reduce effluent flow, reduce odorous emissions, particulate and greenhouse gas emissions, and improve air quality monitoring.
However, the affidavit does not say if any of that money came from government largesse. In its emails to Paper Excellence, the Halifax Examiner asked how much of the $118 million was Northern Pulp’s own funds and how much was from loans or grants from the federal or provincial government. As mentioned above, those emails received no reply.
Plenty of public money
Public money — and plenty of it — had certainly been flowing to the mill owners in recent years.
Just three months before Paper Excellence acquired the mill in 2011, Stephen Harper’s Conservative government gave the owners $28.1 million from its “green transformation” fund. Announcing the grant, then federal defence minister and MP for Central Nova Peter MacKay said that the federal funds would reduce the mill’s odour emissions by at least 70%.
And yet, in 2013, Northern Pulp’s own reports to the National Pollutant Release Inventory showed that emissions of fine particulate matter and total reduced sulphur had actually increased since 2012, and exceeded allowed levels, despite government directives to reduce those emissions.
In 2013, the provincial NDP government of Darrell Dexter offered Northern Pulp loans totalling $20.8 million, of which $2.5 million was forgivable with conditions. The government said the loans were to “support clean air” and “rural jobs.”
Yet the air pollution just got worse.
In the summer of 2014, the town of Pictou was often shrouded in noxious smog coming from the mill’s stacks. The suffocating pollution provoked much public outcry, including from doctors, artists, musicians, prominent business people such as Paul Sobey, and citizen groups such as the Clean the Mill group and Clean Pictou Air Group of Businesses.
Once again, and despite all the government money slated for environmental improvements, Northern Pulp admitted that its emissions were on the rise and that tests in late 2013 showed particulate matter emissions were 78% above allowed levels. 1
When a new precipitator was finally installed to reduce air particulates in 2015, the province announced that it was making the final disbursement of $13.7 million to Northern Pulp from $21.7 million in loans and earned incentives under its now-closed job fund, and of that $12 million of this was to go towards the new precipitator.
Given all these government loans and grants, there is reason to believe that at least some of the $70 million that Chapman claimed was spent on environmental technologies for the mill was public money. Unfortunately, Paper Excellence did not reply to the Examiner’s emails so it could confirm or deny this.
And all of this casts doubt on Chapman’s claims about Paper Excellence Canada’s business strategy being to purchase old mills and invest “heavily in operational and environmental improvements” to extend their lives, and to do so “in an environmentally responsible manner.” (emphasis added)
Chapman provides the BC Supreme Court with this explanation of events leading to the petitioners’ “current financial difficulties:”
In 2014, the pipeline from the Mill to the BH-ETF (Boat Harbour effluent treatment facility) suffered an effluent leak that led to a blockade of the access road to the effluent pipeline by PLFN. As part of resolving the blockade, the Province agreed with PLFN to introduce legislation that established a deadline for the BH-ETF. In 2015, the Province passed the BHA [Boat Harbour Act] which, inter alia, required Northern Pulp to cease using the BH-ETF for the reception and treatment of effluent by January 31, 2020, despite the terms of the Lease and Lease Extension which contemplates the operation of the BH-ETF up to and until December 31, 2030.
That is one way of putting it.
But here is another — far more complete and rounded — account of what happened.
In 2014, the pipeline from the Mill to the BH-ETF ruptured, spilling 47 million litres of untreated effluent onto sacred Mi’kmaq burial grounds and into the East River / Pictou Harbour.
Northern Pulp was charged under The Fisheries Act, and pled guilty.
In his sentencing decision in 2016, Judge Del W. Atwood noted that the pipeline was, “in an advanced stage of deterioration at the rupture site” with “visible cracks, leaks, an extensive corrosion of the pipeline at the rupture site.”
Judge Atwood noted that:
Northern Pulp had an effluent-pipeline-inspection plan in place at the time of the effluent-escape; however, there had not been an internal inspection of the land-based portion of the pipeline … since Northern Pulp had assumed responsibility for the operation and maintenance of the effluent pipeline and treatment facility in 2008 — this despite there having been several leaks that had required repair or replacement of sections of the pipeline in previous years. 2
He also quoted PLFN Chief Andrea Paul, who told the court that the pipeline rupture was not a “victimless” crime, that it “was just the latest environmental insult to the traditional territory of the Pictou Landing First Nation.”
Judge Atwood remarked that the “impact upon the sense and security of the Pictou Landing First Nation was profound.”
He fined Northern Pulp $225,000, and described the pipeline break as “an accident waiting to happen.”
In other words, it was not the pipeline that “suffered” the leak, as Chapman submitted to the BC court; it was Pictou Landing First Nation that suffered from the leak.
Further, Pictou Landing First Nation only agreed to remove the 2014 blockade and allow the mill to re-open after the province pledged to introduce legislation to close Boat Harbour and remediate it as a tidal estuary.
If Northern Pulp took measures after that to prevent more spills, they were obviously not effective.
As the Halifax Examiner reported here, in October 2018, just a few dozen metres inland from the 2014 rupture, the effluent pipeline again sprung a leak. Like several earlier ones, the spill was discovered not by the mill — which was supposed to be constantly monitoring outflow from the pipe and should have noticed it — but by someone walking his dog.
The Examiner has been checking fairly regularly with Nova Scotia Environment since late 2018 for the results of its investigation into that spill. Today, a year and nine months after it happened, NSE spokesperson Rachel Boomer confirms that the “pipeline leak is still being investigated.”
Legendary generosity to the mill
Over more than five decades, Nova Scotia has been extraordinarily generous with the mill owners and forgiving of pipeline leaks, fish kills, and failed emissions tests.
The largesse includes hundreds of millions of dollars worth of government loans and grants, huge amounts of cheap wood from Crown land, and mind-boggling amounts of cheap fresh water. The province even agreed to own and pay for the treatment of the mill effluent.
Northern Pulp still owes the province $20,093,700 for outstanding loans, and Northern Timber owes Nova Scotians $64,780,546 on a loan of $75 million.
It remains to be seen what will become of those.
The Halifax Examiner emailed the provincial government, asking whether the province intends to collect on those debts in full or in part, if it believes it will be able to, and whether the lands and shares offered by Northern Pulp and Northern Timber to secure the loans still had value.
Government spokesperson Sarah Levy MacLeod replied:
Now that the company has filed for creditor protection under the Companies’ Creditors Arrangement Act, the formal legal process will unfold. We won’t be commenting in detail during this time.
The Chapman affidavit provides some insights into how the loans to the petitioners were secured.
Take, for example, the 30-year loan of $75 million made in March 2010 by the NDP government to Northern Pulp affiliate Northern Timber Nova Scotia Corporation, which was then owned by two American private equity firms, Blue Wolf Capital and Atlas Holdings.
Blue Wolf Capital reportedly brought former Premier John Hamm onto its board in August 2010. The same month, Hamm was named chair of the board of the new holding company, Northern Resources Nova Scotia Corporation, which owned both Northern Pulp and Northern Timber.
The 2010 loan went towards the purchase of 475,000 acres of land in Nova Scotia, and included a hidden gift of $7 million. As part of the same deal, Nova Scotia immediately purchased 55,000 acres of the land from Northern Timber, for $300 per acre, 1.7 times what the company had paid for it.
Northern Timber now owes close to $65 million of that loan.
Chapman’s affidavit lists the various ways that loan was guaranteed.
One involved Northern Pulp putting up as security 13 pieces of land totalling about 800 acres. All — except for one in Debert, Colchester County — are on or around Abercrombie Point in Pictou County. Included is a plot of 496 acres on which the pulp mill sits.
As the Halifax Examiner reported here, adjacent to the mill under the former Canso Chemicals plant on Abercrombie Point there is a mercury plume in the bedrock, and nearby there are also landfills containing mercury-contaminated materials. There is also an asbestos disposal area on the mill property.
Additional securities for the loan to Northern Timber are 808 common and 1,000 Class A preference shares. Chapman’s affidavit states:
Finally, as additional security for the obligations due and owing under the NT [Northern Timber] Offer Letter, Northern Timber Nova Scotia Corporation’s sole shareholder, NTNS LP entered into and provided the Province with a Share Pledge Agreement … as granted by NTNS LP to and in favour of the Province pursuant to which NTNS LP pledged all shares in the capital stock of Norther [sic] Timber, in favour of the Province.
According to the affidavit, Northern Pulp NS LP and Northern Timber NS LP are liable:
…to contribute an amount sufficient for payment of the Northern Pulp and Northern Timber debts and liabilities upon a wind-up of Northern Pulp and Northern Timber. Northern Pulp and Northern Timber are presently insolvent and neither of the LP’s have the ability to satisfy the contribution obligations …
Doesn’t sound too promising for the province.
Asked what would happen should the company default on the loan payments, as mentioned earlier, government spokesperson Sarah Levy MacLeod declined to comment.
Extraordinary agreements & concessions
Nevertheless, the provincial government has continued its largesse to the mill.
In 2018, the province chipped in $6 million towards the studies for Northern Pulp’s replacement effluent treatment facility.
The only fine the province ever imposed for the mill’s failure to comply with environmental regulations came in 2017 — after it flunked its emission tests for the third consecutive year. The fine was for $697.50, just 50 cents more than a jaywalking fine in Halifax Regional Municipality.
Such examples of Nova Scotians’ leniency are not acknowledged in the Chapman affidavit.
However, Chapman does provide detail on seven extraordinary agreements that past provincial governments — Progressive Conservative, Liberal, and NDP — have signed with mill owners, which offer them an astounding range of perks and protection, and leave the people of the province with huge obligations and beholden to corporate entities they may never even have heard of.
This is how Chapman’s affidavit puts the Paper Excellence perspective on these obligations:
The Province has significant obligations to PEC and the Petitioners pursuant to the Agreements. PEC and the Petitioners relied upon the Province to comply with its obligations in making their respective decisions to acquire the shares of Northern Resources, loan and invest significant money in the Petitioners and to work cooperatively with the Province, PLFN and others to seek a resolution that would result in the closure of the BH-ETF, remediation of Boat Harbour and the continued operation of the Mill in a manner that respected the environment, respected the rights of PEC and the Petitioners under the Agreements …
And if that convoluted legalese isn’t clear — which it certainly isn’t for my lay brain — Chapman adds the following, which helps to spell out the “or else” for the province if it doesn’t comply with the mill owners’ wishes:
The Petitioners believe they have various claims against the Province arising from the Agreements.
PEC and the Petitioners wish to continue discussions with the Province with the objective of resolving claims the Petitioners have against the Province pursuant to the Agreements, restoring the Mill and relevant forestry assets to an operational state and re-engaging workforces as soon as possible. If the discussions are not successful and the Petitioners are not able to restore the Mill and their relevant forestry assets to an operational state and re-engage their workforce, they and their affiliates will need to consider alternative strategies to maximize value for stakeholders, including liquidating the tangible assets of the Petitioners and enforcing legal rights pursuant to the Agreements. [emphasis added]
Chapman writes that during the creditor protection period, the petitioners are “engaging in settlement discussions with the Province in relation to claims pursuant to the Agreements in connection with or arising from the reduction in the term of the Lease from December 31, 2030 to January 31, 2020.”
Among the agreements that Chapman lists is the one that gives the mill the “rights to a license to use Crown land pursuant to the agreement attached to the Scott Maritimes Limited Agreement (1965).”
Although he doesn’t include these details, the agreement was incredibly generous, handing over to the mill the management of 230,000 acres of Crown land for 50 years, renewable for another 40. So it appears that Northern Pulp has legal control of those public lands until 2055.
Chapman also cites the 1995 Memorandum of Understanding (MOU) and Indemnity Agreement, signed for the Liberal government of John Savage by the late Gerald O’Malley, at that time Minister of Supply and Services.
Signing as witness for the mill was lawyer Bernie Miller, who “acted as the mill’s lawyer on environmental compliance for years” according to CBC, and who from 2009 until 2014 was a registered lobbyist for Northern Pulp. In 2014, Premier Stephen McNeil appointed Miller deputy minister of the Office of Priorities and Planning, reportedly to handle the government’s “most sensitive files.” Miller is now Deputy Minister of the Office of Strategy Management and of the Department of Business.
In his affidavit, Chapman states that the MOU includes covenants from the Province that it will “use its best efforts to assist Northern Pulp to obtain all necessary permits, consents and approvals to permit the construction and operation of a replacement effluent treatment facility,” when the mill’s lease for Boat Harbour expires.
As for the Indemnity Agreement that also bears Miller’s signature, Chapman lays out the extent of the remarkable level of protection it affords the mill owners, and just about everyone who has ever had any association with the pulp mill. The agreement indemnifies:
Northern Pulp (as successor to Scott) and its officers, directors, shareholders, employees, agents, consultants, advisors and their respective heirs, successors (including successors in title), assigns, and legal representatives, shareholders and their respective officers, directors, shareholders, employees, agents, consultants and advisers from, amongst other things, any and all liabilities, losses, claims, demands, actions, causes of action, damages, (including, without limitation, lost profits, consequential damages, interest, penalties, fines and monetary sanctions) including amounts paid to settle actions, whether before or after litigation or other proceedings or activities of any nature, or to satisfy judgments, orders or directives including, without limitation, any judgment, order or directive imposing joint and several liability on the Indemnified Parties and any costs (including the cost of diverting or altering components of the Facility in response to Claims), liability or damages arising out of the construction or location of the BH-ETF.
It’s hard to imagine any government anywhere finding a way to be more obliging than that to the owners of a large multi-national corporation.
But that’s still not the end of the benefits the province has accorded the mill.
Chapman cites the lease agreement signed in 1995, also signed by Miller on behalf of Scott Maritimes (the owners at the time), which granted the mill the use of Boat Harbour until 2005.
The lease was then extended prematurely in 2002 by the government of Progressive Conservative premier John Hamm, giving the mill the rights to use Boat Harbour until 2030.
As mentioned previously, former premier Hamm later became chair of the board of Northern Resources Nova Scotia Corporation and a director on several of its affiliates and subsidiaries, until he stepped back after the mill ceased production in early 2020. Hamm was also a registered lobbyist for the company from 2010 until 2018.
As we’ve seen, Chapman makes it clear in the affidavit that Paper Excellence Canada and the petitioners are engaging in “settlement discussions” with the province, based on its obligations from all these agreements, and that if they don’t get what they want, they will then enforce their “legal rights pursuant to the Agreements.”
From that, it certainly doesn’t sound as if the Northern Pulp saga is anywhere near an end.
“Costly and lengthy litigation”
Just as this article was going to publication, Ernst & Young posted a new application from the petitioners for additional relief and an extension of the creditor protection until the end of December 2020.
As part of that application, Bruce Chapman “general manager (Northern Pulp) of Paper Excellence Canada Holdings Corporation” submitted a new affidavit, this one 237 pages long, and even more explicit about the petitioners’ and Paper Excellence intentions if the province does not help Northern Pulp get its new effluent treatment facility approved and the mill restarted, so that it can repay its debts.
No surprise — this may involve potentially “costly and lengthy litigation.”
The Province of Nova Scotia is one of the largest creditors and most-important stakeholders of the Petitioners. The Province has been clear with the Petitioners that, except for its $10.0 million advance through the 2020 Contribution Agreement [for the decommissioning of the former effluent treatment infrastructure], it is unwilling to provide additional capital to the Petitioners. The Petitioners have accepted the position of the Province and advanced their case in light of the reality that an alternative financing source would be required. Although it has always been known (as with any party making a loan to a debtor in formal insolvency proceedings) that the interim lender would insist on a position in priority to existing secured claims, the Petitioners have engaged with the Province in a meaningful and comprehensive manner on issues related to the Interim Financing Facility. The Petitioners believe that a re-start of Mill operations affords the Province the best opportunity to recover on its claims; absent that occurring, the Petitioners will likely be forced to engage in costly and lengthy litigation with the Province over its passage of the BHA and resulting losses to the Petitioners. The Petitioners continue to have a preference to settle such claims on fair and reasonable terms.
Chapman’s new affidavit also reveals that negotiations with the province for interim financing have not been successful.
While the Petitioners remain open to working with the Province and applicable provincial and federal regulatory agencies to create clear and defined parameters on the approval process for the Replacement ETF (including through the 2020 Judicial Review Application and modification or amendment to the TOR) [Terms of Reference for the Environmental Report that Nova Scotia Environment requires], the Petitioners have not been able to obtain the support of the Province for the Interim Financing Term Sheet. The Petitioners are now very close to being out of time; they have expended $1.5 million since the commencement of the within Proceedings and, absent approval of financing, will run out of cash on or about the first week of August 2020. Given the stated opposition of the Province to interim financing, a third interim stay extension will simply defer the resolution of the inevitable dispute on the priority of the funding with the Province. In effect, the Petitioners’ path forward is opposed by the Province, whose initial decision to pass the BHA [Boat Harbour Act], and subsequent decision to disregard multiple unanticipated issues with the completion of the Replacement ETF and not to extend the January 31, 2020 closure deadline, has by and large required the Petitioners to make the current CCAA [Companies’ Creditors Arrangement Act] filing. Notwithstanding this dispute, the Petitioners remain committed to their restructuring strategy …
Chapman states that the petitioners are seeking approval from the court of draft Debt-In-Possession (DIP), for an initial interim financing advance from Paper Excellence Canada and Pacific Harbor North American Resources Ltd. as lenders, of $15 million, of a maximum total of $50 million.
The interest rate will be “10% per annum, on the outstanding principal amount of advances and the amount of overdue interest thereon from time to time.”
Recall that Paper Excellence Canada, an owner of the petitioners and by far their largest creditor — will now also be providing new loans to its subsidiaries.
According to the affidavit, 65.7% of the interim financial budget will cover critical expenses:
The most significant funding requirements for the Petitioners in the Interim Financing Budget are Mill hibernation costs (including active payroll, severance and continuation, and benefits), environmental protection and compliance costs (including operating and decommissioning costs in respect of the BH-ETF), and environmental assessment costs (in respect of the Replacement ETF). All of these costs are necessary to ensure the eventual recommencement of operations at the Mill, which is the central component of the Petitioner’s restructuring initiatives.
Chapman projects that 34.3% of the financing will go to operating and maintenance expenses, insurance, taxes and finance costs, and professional fees, including those for the environmental assessment process, the 2020 judicial review, the appeal [of the Ministerial Order], and “Boat Harbour Claim Resolution.” Restructuring fees will use up nearly 9% of the projected expenditures.
The petitioners are also seeking authorization to pay “all severance obligations to approximately 280 former unionized employees.”
Their application will be made to the BC Supreme Court on Friday, July 24, 2020.
Joan Baxter is author of The Mill: Fifty Years of Pulp and Protest.
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- The financial assistance from governments to the mill and its environmental record are covered in detail in my 2017 book, “The Mill – Fifty Years of Pulp and Protest.” ↩
- In 2008, Northern Pulp was owned by two American private equity firms, Blue Wolf Capital Management LLC of New York, and Atlas Holdings LLC of Greenwich, Connecticut. It was acquired by Paper Excellence until 2011 for an undisclosed sum. ↩