An attorney for U.S. Bank says “enough is enough” with the attempts to find a buyer for Grays Harbor Paper and is asking a Grays Harbor Superior Court judge to allow the bank to liquidate the mothballed paper company’s assets.
The court filings became public a day after an ownership group led by former Grays Harbor Paper CEO John Begley sought community support for a federal tax credit to help the group re-start and modernize the mill. The Grays Harbor County commissioners, the Hoquiam City Council and Hoquiam Mayor Jack Durney all approved letters to support Begley.
The mill closed down in May of last year, laying off more than 200 people. Facing more than $25 million in secured and unsecured debts, the company’s assets were assigned by Grays Harbor Superior Court to Dick Hooper of Pivotal Solutions, the general receiver given the duty to try to sell the assets or find a buyer for the mill, with the aim of paying off as much of the mill’s debt as possible. U.S. Bank is a secured creditor with the biggest debt at $9.4 million.
Begley didn’t return a message seeking comment on Tuesday. Hooper said he was aware of the filings and would be making his own response. He had no further comment on the matter.
“This receivership has been a general receivership for over a year,” attorney Teresa Pearson with U.S. Bank writes in court filings. “The receiver has been trying to sell the property throughout the receivership without success. Enough is enough. U.S. Bank should not be required to fund futile sale efforts. It is time to allow U.S. Bank to liquidate its collateral without further requiring it to fund efforts to preserve Grays Harbor Paper’s former business as a turnkey operation.”
Instead of a general receivership geared toward finding someone to buy and operate the mill, U.S. Bank is asking the court to appoint a custodial receivership. A custodial receiver would be responsible purely to hold the assets until U.S. Bank is able to liquidate them, which would likely mean selling off pieces of the mill and demolishing the rest.
“Because there is still a need to protect the assets during the liquidation process, U.S. Bank believes that conversion of the receivership to a custodial receivership would better preserve the value of the state than termination,” Pearson writes.
“To the extent that the receiver argues that the sale is imminent and that it will benefit other constituencies, such as the buyer, the landlord or Grays Harbor PUD, then those entities should be required to fund the expenses of Grays Harbor Paper’s former business as a turnkey operation pending such a sale,” she adds.
Pearson notes that thousands of dollars have been spent on paying the receiver’s expenses and, by the end of the month, those funds will be exhausted.
“The receiver has spent all of the funds in the receivership pursuing sales that have not happened,” the attorney states. “U.S. Bank does not believe there is any further point in throwing good money after bad to chase a sale that the receiver has not demonstrated is likely to occur. …
“Any sale will not generate enough proceeds to pay U.S. Bank in full,” the attorney added. “There will be no excess funds from the sale of U.S. Bank’s collateral to pay anything to unsecured creditors.”
In April, Hooper announced that he had signed a letter of intent with a new company led by former Grays Harbor Paper CEO and industry veteran Begley.
“Thanks to the willingness and the cooperation of U.S. Bank and the Grays Harbor PUD, the two senior secured creditors, a preliminary agreement has been reached,” the press release stated.
However, a declaration by a top U.S. Bank executive made public on Tuesday says the bank never agreed to the contents of the press release.
“The receiver issued a press release improperly implying that it had U.S. Bank’s support and involvement with the sale to the purported Washington buyer — without U.S. Bank’s consent,” the declaration by Senior Vice President Roger Lundgren states. “U.S. Bank has not consented at this time to the sale to the purported Washington buyer. U.S. Bank is not opposed to a real sale; it is just not convinced there is a real sale or ever will be one.”
Lungren outlines a number of problems with the “purported sale” to Begley’s ownership group, including “the need for the buyer to obtain operating financing.” Lundgren points out that there is still unpaid rent owed to landlord Rayonier Inc., which owns the land where the mill is located. The unpaid rent may be a problem with Grays Harbor PUD, which owns a biomass turbine inside the paper mill. A waiver of the unpaid rent may be needed, Lundgren said.
PUD spokeswoman Liz Anderson confirmed that the PUD has a lease agreement with Rayonier for everything but the paper mill building, and had been subleasing it back to Grays Harbor Paper. Anderson said the agreement was there so that the biomass turbine could be operated on its own if the mill was not operating.
There’s also the issue of more than $1 million that Grays Harbor Paper owes the state to pay off a loan that helped finance the biomass turbine.
And Lundgren says there is still a need for an agreement between U.S. Bank and Grays Harbor PUD on the allocations of the proceeds of a sale by the receiver.
“Throughout the negotiating process, the receiver has only sporadically involved U.S. Bank in any discussions of the sale,” Lundgren states in the declaration. “The receiver has represented to U.S. Bank for months that agreement is imminent, but it does not appear that is the case.”
Begley is calling the new company Harbor Paper. He had hoped to close the deal by the end of June, but told Hoquiam Council members on Monday to expect to see steam coming from the plant in August and “we’ll be making paper shortly after that.” To sell the mill to Begley’s ownership group, a judge would need to sign off on the plan.