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According to court documents filed last week in a bid to seek protection from its creditors, the “state-of-the-art” plant was still in the black as recently as October. But then, in three short months, the operation Buchanan Forest Products bought in 2006 was bleeding serious red ink, and unable to make payments on about $80 million worth of debt. “The company is running out of cash and is facing an immediate liquidity crisis,” warns TBP financial officer Russ York in a sworn affidavit. York‘s detailed outline of the mill‘s financial woes is an example of how quickly formerly robust forestry plants have succumbed to nose-diving prices and product demand. It also serves as a rare glimpse into the workings of Buchanan Forest Products, the intensely private company referred to in court documents as Lucky Star Holdings that Thunder Bay‘s Ken Buchanan started from scratch 50 years ago with the purchase of a single lumber mill. On paper, Terrace Bay Pulp is a solid business. It has an experienced workforce and one of North America‘s largest production forests in its backyard. It‘s capable of cranking out a whopping 450,000 tonnes of pulp in a single year. But for the past 10 months, likely unbeknownst to many of the pulp mill‘s 400 workers, the struggling operation has been trying without success to find a new source of financing. In his affidavit, York says: “Interested lenders recognized the quality of the assets and the sustainability of the company‘s business model but, given the global economic turmoil, have generally not made more or new credit available.” So with no new investor on the horizon and the plant in the red, the operation was idled for six weeks Feb. 23 and is trying to unload, at probably depressed prices, about 66,000 tonnes of unsold finished product. York says the company, at the very least, wants to find buyers for the pulp that‘s already been made and keep the heat on to preserve the plant‘s structural integrity. It also wants to process an existing pile of logs and chips, a project the court document says will provide a month of work for plant employees. But even that seemingly straight-forward task presents another wrinkle. According to York‘s affidavit, a called-in loan against TBP‘s parent company may prevent the wood pile from being put through the mill. “The Toronto-Dominion Bank, Buchanan Forest Products Ltd.‘s secured lender, has issued a demand for payment of all indebtedness owing to TD by BFPL, putting the raw material in question,” York‘s affidavit says. Terrace Bay Pulp also owes Buchanan Forest Products $15.5 million, according to the document. Despite what may appear as insurmountable financial hurdles, York says the company wants to get its house in order and get on with business. But if that “is not ultimately successful, the company intends to . . . idle the plant for a longer term and either wait until market improves or liquidate assets.” The next update is set for April 24. As bleak as things seems, the financial firm that has been appointed to “monitor” Terrace Bay Pulp says the amounts owed are not unusual for a plant of its size. “These are large operations, so the debts can be significant,” said Alex Morrison, a partner with Toronto-based Ernst & Young. “But could it still be turned around? Absolutely.” Top of Page |
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September 2, 2010, 8:22 am |