$110-M loan designed to keep paper mill viable for a long time

Gary
Gary Kean
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A loan agreement announced Thursday between Corner Brook Pulp and Paper and the provincial government implies the paper mill will be around for a long time.

Daniel Archambault (right) executive vice-president Kruger Inc.’s industrial products division, shakes hands with Premier Tom Marshall (centre) and Gary Healey, Unifor national representive, at the announcement of the province’s loan to the paper mill in Corner Brook Thursday.
— Photo by Geraldine Brophy/The Western Star

The deal states the paper company will repay $110 million in 59 quarterly payments of $1.85 million, with the first payment due March 31, 2019 and the final residual payment due Dec. 31, 2033.

Around $85 million will be released immediately to allow the company to refinance its existing debt and for working capital. The remaining $25 million will be provided as planned capital improvements are completed.

 

Flexibility to make capital investments

The company said the upfront money, plus the fact it doesn’t have to start repaying it for another five years, will give the mill more flexibility to finance capital investments. The company expects to invest about $70 million of its own, along with the $25 million coming from government.

“There’s $95 million in capital expenditures,” noted Premier Tom Marshall. “So, there is investment going into the mill and the (Deer Lake) power plant and that augers well for this mill.”

That’s a long way from two years ago when the paper company was negotiating labour agreements with its eight unions and seeking a five-year extension on covering its obligations to the unfunded liability portion of the company’s pension funds. At the time, the paper company was saying the operation was in jeopardy if it could not come to terms with its current and former employees on all those issues.

Reaching those agreements, which have all since happened, was also a condition of accessing the government loan announced Thursday.

Daniel Archambault, executive vice-president of Kruger Inc.’s industrial products division, was in at the announcement on behalf of the mill’s parent company. He said the deal will help Corner Brook Pulp and Paper improve its cost structure and ensure the sustainability of its assets in Corner Brook and Deer Lake.

“This mill has the potential to be one of the best mills, if not the best mill, in Canada when you talk about overall cost structure and quality of the product,” Archambault said. “We are moving there at a very good pace and we are convinced the place will be competitive. It is (competitive) today and we will continue to improve our competitivity.”

The key requirements for Corner Brook Pulp and Paper are that it has to repay the loan, continue to operate the mill and make planned capital expenditures in the mill and power assets. The company is required to contribute to employee pension plans and is responsible for environmental liabilities.

The company must file quarterly and annual financial statements and sustainability/capital plan progress reports. It must also file an annual operating budget and business plan, pension and actuarial reports, among other reports.

The loan is secured by a mortgage over company power assets and water rights, including the Deer Lake Power Plant and Watson’s Brook Power Plant. The provincial government will purchase the power assets, water rights, and all related rights to the power assets for the people of the province, but only if the mill closes.

Marshall noted the mill being operational is crucial to the province’s entire forest industry since many sawmills have a symbiotic relationship with the paper company when it comes to wood harvesting.

The premier said the deal was made possible by the company, its past and present employees and the government coming together with the common goal of ensuring the mill’s continued operation.

He hopes the mill will continue to drive the western Newfoundland economy long enough to celebrate its 100th anniversary in 2025.

“There’s no guarantees, but I do know we have an owner who has made it clear he is committed to the mill. We have a government that is supportive, a workforce that has been making paper for years — they know what they are doing,” said Marshall. “If anybody can make a go of this, this operation can.”

 

 

Organizations: Kruger Inc.

Geographic location: Deer Lake, Corner Brook, Canada Newfoundland

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Recent comments

  • Corporate Psycho
    February 21, 2014 - 19:51

    If I worked in Wabush I would be pretty pissed about now.

  • New Veteran
    February 21, 2014 - 11:24

    The article said the money was "secured by a mortgage over company power assets and water rights, including the Deer Lake Power Plant and Watson’s Brook Power Plant. The provincial government will purchase the power assets, water rights, and all related rights to the power assets for the people of the province, but only if the mill closes." Should it not say the government would seize the assets when the mortgage is not paid?? Forty years ago the mill employed six thousand people. Times and consumers change and it's time to realize that the paper industry is on it's way down as well.

  • SayWhat
    February 21, 2014 - 10:11

    How does he do it? Joe Kruger gets mega millions from the provincial government and just two months ago he gets millions from both the P.Q. and Federal Governments for a mill in Quebec. Federalist--Separatist, Majority-Minority, Have or Have-Not . The King of Toilet Paper seems to have the magic touch when it comes to getting the hard earned taxpayers money. Question I got to ask: How come my bank don't give me the same terms of repayment?

    • bob
      February 22, 2014 - 11:06

      Actually, you don't know this, because cbc and the telegram did not publish this, there is interest that has to be paid on this loan of 4% for the first 3 years (which is 33% more interest that I pay on my mortgage) and then it is the governments cost of borrowing plus .5%. So the government is acting like a middle man for the bank and taking a cut, actually making money off this loan. It is too bad that these fact are not reported here...

  • david
    February 21, 2014 - 09:48

    Straightening the deck chairs on the Titanic is one thing.....getting the passengers do it is quite another. But having them paint the ship every year?! Seriously.

  • Fred the Farmer
    February 21, 2014 - 09:27

    Really??? So we borrow money to give to Kruger so he can re-finance at 0%. Since becoming Premier, Big Tom has spent over 1/2 billion dollars we don't have. Must be nice living in that 'Golden Times'

    • bob
      February 22, 2014 - 11:24

      Wow, it is annoying that so many people here comment on this "interest free" loan. You don't know what your are talking about, but feel the need to talk anyway. The details of the loan are that it is at 4% interest for the first 3 year (well above prime) and then the governments cost of borrowing plus .5%. The government (and tax payers like you) are making money of this loan which is secured with real assets that are worth more than the amount of the loan. The government cannot give this mill a subsidy as under Nafta they would be penalized and have to pay money to the US to remedy the subsidy. Still so many comments from you guys wishing this loan away. It is like you are cheering for the Mill in Corner Brook, which has contributed to the NL economy for 90 years now, to close and throw hundreds of people out of work. You really need to take a good look at yourself and ask why you would like to see other people in hardship? And as for the folks in Walbush being upset, why? They are getting a 300 million dollar gift from the government (not a loan) to bring the power lines to Alderon who says that they will hire the displaced Walbush miners. Does not sound like a bad deal to me. However, being from the west coast, I get it. Seems like some people just don't want to see us get ahead. And to think that this loan, which is secured, and which will actually make the government money all the while saving the entire forestry industry on the island, is being slammed on here... it is actually not that surprising given the misinformation being spread. People need to make themselves aware of the facts before they spout off...

  • 55CARES
    February 21, 2014 - 08:49

    Absolutely not! If anything Mr. Marshall should resign immediately. This fellow has been the Minister of Finance for approximately 6 of the last 7 years and just look at the mess; running deficits at a time when government has more revenue than ever in the history of this province. He just delivered a transmission line to Alderon at the expense of the people. He just approved a loan for of 110 million for Kruger. Unbelievable!!! Is he the person that appointed his Deputy Minister of Finance Mr. Terry Paddon to the current Auditor General position? Mr. Paddon is now finding misspending and/ or irregularities? Why did Mr. Marshall not detect this when he was the Minister of Finance and why did Mr. Paddon not detect this when he was Deputy Minister of Finance? What is going on here with this PC government? In my opinion an investigation and/or inquiry is needed into how this province has been governed since the PCs became the government in 2003. Maybe bring in Sheila Frazer?

  • DW
    February 21, 2014 - 08:21

    A no interest loan to a serial failure of a business. Clearly designed to purchase LA seats in the Bay of Islands...Corner Brook is the Quebec of NF/LD and they'll vote for whoever they think will pay *after the election*, they're too scared to find themselves on the wrong side of the floor. Marshall will have to run as a liberal...

    • bob
      February 22, 2014 - 12:04

      A serial failure of a business?? Been selling paper for 90 years and still in operation. How many years do you have to contribute to the newfoundland economy before you are not considered a serial failure? And who do you vote for if not for somebody willing to invest in your community? what a ridiculous comment you have made. We all vote who we think will bring us the most. To say that you do not yourself would be a lie... So what is your point?

  • Darrell
    February 21, 2014 - 08:09

    Another sign of desperate measures by a party on the blink or should I say brink. I'm sure we will see a good budget soon talking about all the good things the PC party have done and will do. Too late boys, she's gone, she's gone.

  • Too Funny
    February 21, 2014 - 08:03

    "to keep paper mill viable for a long time". If by a "long time" you mean 5 years. You can bet your a$$ that mill will not be making any payments.

    • bob
      February 22, 2014 - 11:55

      How Much? I'll take your bet! The mill has already rebounded due to the low Canadian dollar. The worst is behind us.

  • original townie
    February 21, 2014 - 07:22

    How much do you want to bet the company closes the month before the first installment due on Mar.31/19? Really, paper in today's world is dying and the company can't stay afloat. What makes them or the govt. believe the market will be there in a declining industry in 5 years? Simply....it won't. You don't have to be an economist to figure this one out. Another waste of taxpayers money that we work hard for daily. Only terms like these are available through govt. No bank would remotely consider. If that mill died today, CB would recover by 2019. This company is not even NL owned to add salt to the gaping wound. Even then I would not support this. Private business survives on it's own or goes away. Prolonging the inevitable. What a waste of our money! Not hard to know Tommy is from CB. The majority of taxes are collected from St. John's, now we have to keep the west coast going. Kick these cronies to the curb.

    • bob
      February 22, 2014 - 10:34

      townie, the mill actually has stayed afloat, and is now on the rebound. It has made it trough another cycle in the forestry industry that was not unique to the mill in Corner Brook, but that was felt all across the country with paper and lumber prices being at it's lowest in over 20 year due to the American recession and the high Canadian dollar. That is the way it goes. The mill in corner Brook when through this exact same thing in the 80's and guess what? The government stepped in and helped it that one year and that was over 30 years ago. Of course, there were lots of folks like you who said it was a big waste of money back then as well. So a loan to help get it through another 30 years might not be that bad an idea. That mill contributes $250 million to the Newfoundland economy each year in Salaries. And don't forget, the mill supports the entire forestry industry on the whole island due to it's logging operations and log trade agreements will sawmills all across the island. So this loan is not just to support Kruger but mills all across the island. $10 says you had no idea about that!! The amount of money the government has put into the mill, over the entire past 90 years, is a tiny tiny fraction of what it has received back in benefits and that is why this loan is a great investment, at a time when the market is on the rebound. Again, as I am sure you still do not get it, this is a renewable resource, unlike oil. And yes, it probably is a good think that Tom is from Corner Brook. As he understands that oil is non-renewable, and there will need to be some industry left when Shell and Mobil etc.. pick up and leave town, so that our taxes can be used to support the rest of NL (like they have for the past 90 years)... And guess what? They (the oil companies) are not Newfoundland companies either, and those profits not only leave the province, but the country.... But I guess you oil bigshots think that you know everything, and have keep the province going for the last 500 years. Perhaps you should take a few minutes to see how maybe the once mighty fishery was there to build all the roads and schools and hospitals long before the oil and gas whores ever came to town. Should we shutter the fishery (another renewable resource) as well? But why waste my time; my words will be lost on you as you will never be able to see the forest for the trees. You and those like you are two short sighted. You need to wipe the oil from your eyes...

  • Crazy
    February 21, 2014 - 05:01

    If its true, They know what they are doing, Explain it to me Mr Marshall why they putting their hands in my pockets. Anyone can operate a business on the backs of the taxpayers.

    • bob
      February 22, 2014 - 11:48

      @crazy - your name says it all. Nobody has their hand in your pocket. This is a secured loan that Kruger has to pay interest on and that the Government will actually make money on. Governments always invest money in industries to help spur on the private sector. Nalcor invest money in seismic work to help the sales of exploration licenses. Natural resources invests money to spear head new farming industries such as Cranberry farms, Christmas tree farms and vineyards. Not to mention past investments in the dairy, beef and poultry industries. All of these development came for government seeing an opportunity for job growth and investing. Even the old riches that are the big deal now in newfoundland were invested in back when Peckford was in charge when he fought for the rights outside our 12 mile limit, and again when Grimes and company put the money into the court battles to entrench our boundries with other provinces... Were those investments other examples of putting hands in your pockets as well? Would private industry have come in and don't that for us? I don't think so... I am a capitalist and have successfully ran a couple of business, but I do see where governments can come in and invest a little and get a big payoff for the people. This is one of those times when an investment can really make a difference, and most importantly, pay it'self back.

    • Corporate Psycho
      February 23, 2014 - 16:52

      Well said crazy.