Pulp problem
 | The future of bankrupt Red Shield depends on the price of wood

Red Shield Environmental LLC, the company that had promised to modernize a shuttered Old Town mill and create renewable biofuel, is in peril. After struggling to pay its bills as the price of wood chips soared this spring, Red Shield filed for Chapter 11 bankruptcy protection on June 27, three weeks after it had shut down the mill and laid off 160 of its roughly 190 employees. â&Copy;
Chairman and CEO Edward Paslawski insists, however, that despite the current money shortage, the company has merely stumbled and will reopen soon.â&Copy;
“The company’s debt is just a fraction of the valuation of the company,” Paslawski says. “The company is actually in decent shape once we solve our cash flow problem.”â&Copy;
Red Shield and its pulp mill subsidiary, RSE Pulp and Chemical LLC, owe about $16 million to more than 100 secured and unsecured creditors, according to bankruptcy documents. The filings list the company’s assets, meanwhile, at between $50 million and $100 million. Specifically, the liquidation value of the company is $48 million and the operating value is in excess of $100 million because, Paslawski says, the mill is profitable when it’s running. (Paslawski also notes that Red Shield this year was on target to bring in $100 million in revenue.)â&Copy;
In the meantime, Paslawski says the company has secured a loan for more than $13 million from an unnamed lender that will jumpstart the idled mill. A U.S. bankruptcy judge would need to approve that lender, but if Red Shield sails through this process and secures a loan, Paslawski says the mill could rev up its pulping machines almost immediately. (On July 23, the company also was approved for a $1.25 million loan from Chittenden Trust Co., of Burlington, Vt., to help pay laid-off workers.)â&Copy;
Red Shield’s attorney, Robert Keach of Bernstein Shur in Portland, says there’s considerable interest in financing the mill because it promises to make a “fair amount of money.”â&Copy;
The two-year-old company, which currently is making traditional hardwood pulp used for paper-making, also is attempting to build a $90 million refinery to extract ethanol fuel and other chemical byproducts from wood. And Red Shield is converting its mill to make so-called “dissolving pulp,” which can be turned into rayon for clothing and sells for twice as much as hardwood pulp, according to Paslawski.â&Copy;
Keach says Red Shield would need an overall investment at this point of $18 to $20 million, both to open again and to climb out of bankruptcy. “The design here is to reorganize the company and not to liquidate them,” Keach says. “The next step is for us to obtain financing.” â&Copy;
The key to a successful reopening, however, hinges on the price of wood chips, the mill’s primary raw material. In its bankruptcy filing, Red Shield explained that the price of chips, which industry experts say doubled in the past six months to $60 to $70 a ton, quickly overwhelmed the mill. â&Copy;
Paslawski is confident, though, that the lumber market will stabilize. “We expect [the price] to drop for a couple of reasons,” he says. “With the price as high as it is now, it will send people back into the woods to harvest trees. And eventually the housing crisis will abate and they’ll start building again. It will return to normal when the housing industry comes back.” â&Copy;
John Williams, president of Maine Pulp and Paper Association in Augusta, says the slowing housing market, which led some landowners to curtail harvesting, was just one factor affecting supply and demand. Supplies also were diminished by the inclement winter and spring, which made it more difficult for loggers to get into the woods to work. Plus, the high price of oil increased the costs of logging and transporting wood, pushing up prices. Finally, increasing demand for wood by pulp mills, new wood pellet companies, and those burning firewood has driven up prices.â&Copy;
Peter Triandafillou, vice-president of Huber Resources Corp. in Old Town and president of the Maine Forest Products Council in Augusta, says with summertime’s good weather helping loggers, he expects the price of wood chips to come down within the next six to 12 months. Still, there are some concerns: “The one unknown there is, if energy prices continue to skyrocket, will we turn to wood more and more?” he asks.â&Copy;
Making concessionsâ&Copy;
Red Shield Environmental is owned by a group of private investors that in November 2006 took over the Georgia-Pacific mill eight months after it had shut down. The group planned to convert the tissue paper mill into an industrial park, with several business tenants, and power the mill with the existing biomass boiler that burned wood chips and demolition wood. Prior to its June closing, Red Shield had reactivated the boiler to make electricity and steam, and was manufacturing hardwood pulp as it pursued other experimental markets. â&Copy;
The company ran into trouble, though, when it could not find any tenants for the mill’s 450,000 sq. ft. of unused space. “It’s the nature of the game, we’re in a recession,” Paslawski says. “People are not expanding, they’re retracting.” â&Copy;
Despite this setback, Red Shield did boast some remarkable achievements. Last spring, the U.S. Department of Energy gave Red Shield and the University of Maine $30 million to help build a biorefinery to extract hemicelluloses from wood chips to make ethanol for fuel. â&Copy;
Red Shield also plans to switch over in the next 18 months from making hardwood pulp to the more lucrative dissolving pulp, which makes rayon, a clothing material that wicks sweat away from the body and is an alternative to petroleum-based clothing, like nylon and polyester. The conversion will cost $10 million, but dissolving pulp sells for $1,000 a ton versus $500 a ton for hardwood pulp, according to Paslawski. â&Copy;
Red Shield’s foray into these new markets inspired some businesses in Maine to give the start-up a little extra support. “I think we, like a lot of companies that supplied the mill, extended them terms beyond what we normally would because we wanted them to succeed,” says David Colter, president of GAC Chemical in Searsport, which is owed more than $84,000 by RSE Pulp and Chemical. â&Copy;
Although Red Shield was two months behind in payments to Ted Ocana, owner of Foresight Engineering in Lincoln, Ocana says he was still shocked when the company closed. He rushed to place a lien on Red Shield soon after hearing that workers had been laid off, one of three companies to do so to secure their money. Despite taking this precaution to be repaid in the event of liquidation, he believes that the “ethanol concept has promise.” â&Copy;
“[The mill] needs to get running, and they need to get the ethanol going so everyone can get paid back. That’s what we want for the workers,” Ocana says, adding, “and for the United States.”
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