- thé company, 7 “In this 30-day period we will continue to aggressive- . ly pursue the companies that are putting offers together,” By JEFF NAGEL LOGGING contractors are bracing for a long hard winter now that Skeena Cellulose is up for sale, shut down and under court-approved Protection from its creditors, “I think we’re down till at least January,” said Lloyd Hull, co- owner of Don Hull and Sons Con- tracting Ltd, Many of those dependent on SCI fear a deal to sell the company will take much longer than government of- ficials hope — on the basis that, from a buyer’s perspective, the more pain felt in the region the greater the govern- ment’s ‘desperation and the cheaper the price. “If T was in that league, I’d wait until the fingernails were barely hang- ing on before saying ‘Okay I'll give you half what you’re asking for,” said ‘Ken Houlden, spokesman for the Northwest Loggers Association. “I can see us easily dicking around all winter.” From front Bouncing cheques led to court action These preparations for CCAA began in earnest after Thorpe met the bankers Aug. 28 in Toronto. “They indicated they did not have a whole Jot of op- tions and would exercise their option to protect their rights,” Thorpe said. “I interpreted that as meaning they would file for payment of their loans.” “I gave instructions to my people to be ready to go to CCAA.” Despite that, Thorpe said, senior bank officials had agreed on Labour Day, Sept. 3, that the workers’ pay cheques would be honoured. , “I was very disappointed when I was advised those had been bounced,” he said, “TI think it's important that other people keep their ‘commitments when they give them.” Thorpe said he then accelerated the ministry’s plans and filed for protection Sept. 5. It was crucial to ensure $900,000 in payroll cheques were honoured. " Had that not happened, the company would have been insolvent and fallen into bankruptcy, he said, '. “The other option was to go into bankruptcy in which the banks take the lead position as a creditor,” he said. Thorpe said his officials were also preparing strate- _ gies to deal with a number of other different scenarios -that did not materialize. The court filing says SCI employs 1,050 workers dir- -ecily and another 1,000 through its logging contractors. __ An estimated .7,000 additional service industry jobs ‘throughout the region could also be affected if SCI, failed, it-saysof 60 34a Aer an get ee Lee oT Caatyeg tie! _ Creditor’ protection bilys the govérnment ts peirecwie Thorpe said. . ‘Mercer International, one of more than a dozen po- tential buyers, “has expressed a serious interest but has not: yet made an offer to acquire Skeena,” the court fil- ing says. “Mercer has retained experts to provide a report on Skeena at the end of September, 2001.” . §CI’s reprieve may be temporary, however. ’ “We have to. reappear before the courts on Oct. 5,” noted Thorpe. “I’m sure the courts will ask how are you moving on bringing a sale into being.” - “If they don’t believe we are making progress in that direction or if we're running out of cash then we'll have to face other options.” ~ Being under creditor protection, rather than being in ‘bankruptcy, is a much better position for sale of the company, he added. «All of SCI’s lines of credit have been exhausted, but the company has roughly $5 million cash directly under its control, according to court filings. Thorpe said it’s expected the company can continue ~.fo run on internal cash — albeit with most operations shut down ~ for at least the next few months. “A cash flow forecast filed with the court projects con- tinued sales of pulp and lumber through to the end of ‘November, without the company running out of cash. - The Kitwanga and Smithers sawmills were both -operating last week, said Thorpe. ..The Terrace sawmill shut down Thursday amid confu- sion about whether workers would be paid. - The move to go to CCAA was approved by the pre- mier and cabinet, Thorpe added. He said he knew early on that dealing with the TD Bank. would be challenging. “The previous government hadn’t talked to the bank for two years and had no relationship,” he said. “I knew | Loggers fear tough win The Terrace Standard, Wednesday, September 12, 2001 - A5 Theory is any buyer will wait for maximum pain, minimum price All logging and road building halted by mid-August, Houlden likewise sees little pro- spect for any of the operations to re- start over the next few months, unless markets, and particularly depressed a “If lwas in that league, I'd wait until the fingernails were barely hanging on be- fore saying ‘Okay I'll give you half what you're asking for.’” pulp prices, rebound, \ “T can’t see it,” he said. “The com- pany management has been winding things down because of the markets. I can’t see how a court-appointed mon- itor is going to come to any different conclusion,” “Maybe the bug kill situation in the interior might afford some short-term opportunities for people,” Houlden added, The one bright spot that’s different from the last collapse of Skeena Cel- lulose is that contractors are for the most part owed. much less money this time. SCI was cautious in August to step down logging and road-building work to ensure those companies would be owed little if there was another finan- cial crisis. “This time they kept a tight control on their payments,” Houkden said. “They had us shut down the last half of August.” “AS a contractor, I’m owed dribs and drabs but nothing substantial,” he added. Hull agrees. _ He said outstanding bills to Don Hull and Sons Contracting Ltd. as of KEN HOULDEN with one of his company’s logging trucks. last week totalled around $65,000 al- though he was hopeful SCI cheques deposited for that amount would clear, ter ahead Even if they bounce, he said, the amounts this time are “pocket change” relative to SCI’s unpaid bill of $2,447 million to the Hulls in 1997, “Compared to last time we're in great shape this time,” he said. But Houlden said the bigger pro- blem for many contractors has been the sporadic work over the past four years. “With the stop-and-go operations of SCI since the last CCAA action, everybody’s substantially weaker,” he said, “I'm sure pretty well all the con- tracting community. is in worse shape than it was four years ago.” Houlden said he's now on alert for banks to begin repossessing equipment held by SCI contractors already near their financial limit. Although SC] is protected from its creditors until Oct, 5, the logging con- tractors are not. “I imagine a move like this will make the banks pretty nervous,” he said. “They’te holding paper on opera- tions that are reliant on SCI.” ee te ey ttre ty time to sell «" AN OVERFLOW crowd of lo the last time Skeena Cellula Gov’t gets part blame for crisis — truckers By JEFF NAGEL ONE LOCAL trucking contractor that had Skeena Cellulose cheques bounce last week says government afficials. should have seen the situation coming, Western Seaboard is owed “several hundred thousand dollars” from Skeena Cellulose, says general manager Richard van Genne, He fears the govern- ment’s move to place SCI under bankruptcy protec- tion means Western Sea- board could face a repeat of what happened in 1997. It was then owed $150,000 when SCI prede- cessor Repap B.C. col- lapsed, and ultimately got 10 cents on the dollar. And van Genne says benefits of that ... program while the pulp markets The closure was con- firmed as indefinite just ggers and supporters spilled outside of the arena for a rally in March 1997 — sé fell into bankruptcy protection. History now seems to be repeating itself. Harris said people should also remember the enterprise minister Rick Thorpe bears some of the blame for the financial whip a iia hy ee fa ra a ; ma. Wo ni . % a i. “meltdown stemming “from uc , Vee min vr al al ih S ie oe DB. the lack of a.deal. with the | 5 ee tat —_ - = TD Bank to extend SCI’s By ROD LINK DELAYS IN equipment financing. “If you go running around telling everybody were strong during 1999 two weeks ago. company made money last improvements, union pro- blems and a sagging pulp market hammered Skeena Cellulose’s financial situa- tion, indicate court docu- ments filed last week. The documents, used by the province to seek and receive 30 days of creditor protection for the company last week, sketch out a plan that might otherwise have helped the company survive. Back in 1997, after for- mer owner Repap walked away and the province ended up partnering with two banks, the TD and the Royal, a capital improve- ment plan was developed to spend $170 million to reduce the company’s operating ‘costs, particular- ly at its large Prince Ru- pert pulp operation. Tt was whittled down to $110 million and comple- ted in 2000. , But that was late “due to difficulties between a contractor and its union” as well as delays in get- ting financing, indicate the documents. “As a result, Skeena and 2000,” they continued. “Because Skeena was not able to accumulate fi- -Nancial resources during the recently strong phase of the pulp market it suf- fers from a short term li- quidity problem.” Adding to Skeena’s fi- nancial stress in 2000 leading into 2001 was the large jump in the price of natural gas. The company didn’t have enough cash to make substantial gas purchases ahead of time to avoid those price hikes, say the documents. That cash shortage and increased costs grew to the point where half of the company’s pulp operation has been closed for a lengthy period of time. With pulp prices drop- ping to the $450 range, it was costing more to keep producing than what the product was fetching. That ultimately caused the closure — described at first as week to week — of the entire Prince Rupert pulp operation the begin- ning of July, Million before Closures also took place at company saw- mills in Smithers and at year and paid $100 million in taxes to three levels of government. “It has been a you're not going to put an- other nickle into your operation, and then the bank does the same thing, Carnaby near Hazelton contributor to the ‘ou can't all of a sudden and the larger mill here in economy,” he said. say you're blindsided,” Terrace was being wound Regardless, the new van Genne said. down as the end of August approached. Despite the bad news, documents indicate it made a profit in 2000. That amounted to $69.2 interest, taxes, depreciation and amortization and an over- ail net of $18.5 million. As well, documents filed said the company ob- tained more workplace flexibility from the Pulp and Paper and Woodwork- ers of Canada union in Prince Rupert and that this into flexibility will lower operating costs, Skeena Liberal MLA Roger Harris said the trou- ble with SCI’s pulp mill has always been the cost of production. “When you get down to $610 a ton, it’s the first out and last in when markets do improve,” he said. “The key is to get costs down to the $500 range.” the Liberal government has been firm in its stance of not putting any new money company. “Skeena’s current owners are not prepared to fund Skeena until markets reco- ver sufficiently to return Skeena to profitability,” state court documents. Split up company, loggers suggest THE LATEST CRISIS in- volving Skeena Cellulose is a major opportunity to reform how the forest com- pany is run, says North-. west Loggers Association spokesman Ken Houlden, “T certainly hope gov- ernment and the auditors “You can’t be surprised when the minority share- holder says they, too, aren't going to put any more money into the operations,” he = said. "That’s not brain surgery. - It’s pretty elemental busi- ness.” Western Seaboard tried to cash cheques from SCI for chip and lumber haul- ing on Aug. 31, the dead- line day when SCI’s line of credit was to run out with the TD Bank. It was told the cheque would be held for five days. ’ Western Seaboard then went directly to the TD Bank to cash the cheques, but was told they’d be held until Monday or Tuesday, "Then on Wednesday morning we were informed that they would not be honoured,” he said, Van Genne said the shifting of SCI's restart of -we had a huge mountain to climb ahead of us.” From front Mayor names. “don't know the answer and I'd like plans to strike a forestry panel of local people to advise the city on its options if there’s no buyer for SCI “in fairly quick order.” On the panel will be up to a dozen local people, including for- esiry and local business operators, charged with coming up with re- commendations for city council, The group should report ‘by the end of November, he said. - Its main goal will be to deter- mine whether the Terrace sawmill can be separated from the rest of Skeena Cellulose and run viably if Victoria has trouble selling the whole company, . Some local forestry people say it is possible, Talstra said, others say. the sawmill needs to. be tied to a pulp miil.to take the chips. _“Is' it feasible for this: sawmill to stand alone?" Talstra asked. “1. to know.” Talstra said one thing that should be looked at is the poss- ibility of giving the local com- munity control of a big commun- ity forest licence large enough to sustain the Terrace sawmill. “It's an opportunity for us to think outside the box and see if. there are any alternatives.” It could take city money. to help make something like that happen, Talstra said. - “If it meant some sort of finan-— cial arrangement, we would have “ta look very very cautiously at - that,” he said. “We have. to be extremely careful with taxpayers’: ‘money.” ‘ “But if there were a different sort of role that protected the tax-.. payer in every way and if that was ‘was not able. to realize the the only way for the forest opera- tions to continue operating and to keep: workers working, certainly we would look at that. That would be our respons- ibility.” The panel will also make use of the re- port of the last city task force on forestry three years ago. That report was commissioned at that time to Jack Talstra find long-term solutions to avoid a future repeat of SCI's 1997 collapse. - ‘Talstra also warned this Is a time for local unity,” “This: mill-is going to be down for some time and that’s the cruel panel to probe SCI options reality,” he said. “We have to face that reality and not run away from it,” "In the next few months we have to see what can be done. If the mill continues to be down thereafter we have to get very ser- ious with the provincial govern- ment,” Victoria may have to consider various options to buffer the social fallout of extended layoffs, he said. “They may have to directly look at other options of employ- ment here,” he said. “They have to continue to be proactive in finding a buyer.” “And if they have to eat some of their losses, so be it. If they can do it for fast ferries down south I hope they consider the same thing for us northerners here in the northwest.” 7 and everyone involved put some heavy thought into it this time and not just try to do the same thing we did last time," he said, “This is a pretty unique opportunity given the gov- ernment ownership,” Houlden said the crea- tion of community forests out of parts of SCI's forest licences - contralled by towns and native bands throughout the region ~ would help put wood in the * hands of smaller busines- ses that need it and de- volve control of the woods away from one big compa-. ny. , Houlden also suggested separating the forest te- nures from the sawmills. “Have the manufacturer concentrate on manufac- turing rather than looking after a uised tenure and all the political and ‘social aspects inVolved,” operations as well as the financing deadline from week to week heightened uncertainty, He argues it may make more sense to run rather than mothball operations that are up for sale, “If you’re trying to sell an asset you continue to have it running and conti- nie to instili confidence that it will be able to make money.” “You've got to make it look shiny,” he said. “Not let it fall into CCAA, not say it's a money loser, not say you're not going to put another nickle into it, but by the way will somebody step up and give us a de- cent buck for it. I don't buy that,” “We've been through three or four years of being hit in the head with politi- cal decisions and not busi- ness decisions.”