St. Marys Paper is broke, seeks protection from creditors

A major Sault Ste. Marie industrial concern has today filed for protection from its creditors, SooToday.com has learned.

Marc Dube, the company's manager of external affairs, tells SooToday.com that the company filed under the Companies' Creditors Arrangement Act (CCAA) in Toronto.

That's the same legislation under which Algoma Steel sought protection in April, 2001.

The CCAA effectively shields insolvent companies from creditors while they restructure their affairs to allow them to continue operating.

Dube expects the firm will be restructured.

The company's 400 employees were advised today.

"St. Marys is continuing to operate all three paper machines and to supply its customers," the firm said in a statement issued tonight.

"We are hopeful that the Government of Ontario will shortly announce a program to reduce our electricity costs which would cover the period until we can build a co-generation plant which would further decrease our energy costs," said a handout provided to employees.

St. Marys Paper Ltd. sits on the site of a Northwest Company post that was established in 1874, the earliest industrially developed location in Northern Ontario.

Since that time, the site has seen a variety of developments grow and diminish with St. Marys Paper Ltd. being the latest, officially beginning paper making under that name in 1994.

In 1987, American investor Dan Alexander bought the mill from Abitibi, upgraded the equipment to make some changes in the products produced and re-named the operation St. Mary's Paper Inc.

At that time, modifications to paper machines three and four and the installation of two Supercalenders made the production of SuperCalendar-B grades possible.

In 1988, paper machine five was completed and new Tampella grinders installed, giving the mill the capability to produce SuperCalendar-A grades.

In 1994, mill employees and a group of outside investors headed by Ron Stern, assumed ownership of the mill and a fresh influx of capital led to further improvements in quality and productivity.

The mill enjoyed its 100th anniversary of operation in 1995 as St. Marys Paper Ltd. and now employs about 400 people, producing 240,000 tons of paper per year.

St. Mary's Paper Ltd. produces SuperCalendar-A premium, SuperCalendar-A and SuperCalendar-B paper grades under the trade names Sequence, Sequel and Synpress.

Those grades are primarily purchased by magazine publishers and large retail companies for high-quality advertising inserts, flyers and catalogues.

Shareholders of the company include employees along with Belgravia Investments Ltd. and TD Capital.

The following statement was issued by the company tonight:

************************* October 25, 2006

Sault St. Marie, Ontario

Today, St. Marys Paper Ltd. made a voluntary filing under the Companies’ Creditors Arrangement Act (CCAA).

The CCAA is the most commonly used statute in Canada to accomplish financial and/or operational restructuring of businesses in a flexible, court-supervised environment.

The CCAA process is intended to facilitate the transformation to a new business model that will permit St. Marys to emerge as a stable and viable competitor in the market place.

Pursuant to the CCAA order, St. Marys is authorized to continue to carry on its business and to retain its current employees without interruption.

The company has made arrangements with its lender for additional borrowings to fund the company through this period.

St. Marys is continuing to operate all three paper machines and to supply its customers.

St. Marys, like most Canadian paper producers, has been financially challenged by the strong Canadian dollar against its U.S. counterpart, the escalating costs of energy, and a dramatic rise in its pension plan funding requirements, which are not sustainable.

The company has already taken significant steps to advance its restructuring efforts, but some areas, such as the spiralling pension costs, could not be resolved outside of the CCAA.

As part of the CCAA process, Deloitte & Touche Inc. has been appointed by the court as monitor to oversee the restructuring and a process to solicit offers for St. Marys' assets and operations.

A sale transaction could serve as a possible alternative to a company-generated restructuring plan with existing stakeholders, depending on which alternative ultimately appears to offer the greatest benefits to the company and all stakeholders.

The court materials filed by the company and the CCAA order have been posted by the monitor on its website www.deloitte.com/ca/stmarys.

In its letter to employees announcing the CCAA filing, management stated: "It is worth noting that many factors are changing. The mill has made real progress with its costs and the quality of its paper. The significant wage and commission deferral program agreed to early this year has been of critical importance.

"The company’s inventory is at normal seasonal levels and we have a good order commitment for 2007. We are hopeful that the Government of Ontario will shortly announce a program to reduce our electricity costs which would cover the period until we can build a co-generation plant which would further decrease our energy costs.

"There is even an increasing number of forecasters suggesting a lower Canadian dollar in the future – however this is a very volatile factor. We face a very competitive world – but based on today’s markets and costs this mill can and should survive. It has recovered before and we intend to do our best to make sure it does again."

************************* Earlier SooToday.com coverage of this story

Mayor's statement on St. Marys Paper insolvency