Gorham Paper and Tissue, LLC – New Hampshire Paper Paper Products Manufacturer Files Chapter 11 Citing Knock On Effects of Zohar III Bankruptcy Settlement, Intends to Sell Assets

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November 4, 2020 – Gorham Paper and Tissue, LLC and one affiliated Debtor (“Gorham” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-12814. The Debtors, who manufacture paper towel and tissue parent rolls, are represented by Christopher Ward of Polsinelli PC. Further board-authorized engagements include (i) Bernstein, Shur, Sawyer & Nelson, P.A. as general bankruptcy counsel, (ii) B. Riley Securities as investment banker and (iiii) Donlin Recano as claims agent. 

The Debtors’ lead petition notes between 200 and 1,000 creditors; estimated assets between $1.0n and $10.0mn; and estimated liabilities between $50.0mn and $100.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Recycling Associates Inc. ($1.0mn trade claim), (ii) Gulf Island Pond Oxygenation Project ($519k trade claim) and (iii) Solenis LLC ($459 trade claim).

The Debtors' ultimate parent is Zohar III and lead Debtor Gorham Paper and Tissue was established in 2011 when, Lynn Tilton's Patriarch Partners, via the Zohar Funds, purchased the then-shuttered Gorham paper mill out of bankruptcy from FP Acquisitions LLC.

The Debtors had total net sales in FY2019 of $31.9mn in the at-home market and $23.4mn in the away-from-home market.

Goals of the Chapter 11 Filings

According to the Arnold Declaration (defined below): "The Debtors commenced these chapter 11 cases to maximize the value of their estates for the benefit of all parties in interest through a going-concern sale process. The Debtors intend to seek approval from this Court for a bid solicitation and auction process that will play out over the upcoming weeks, with a closing targeted for mid- to late-December 2020."

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Arnold Declaration”), Richard Arnold, the Debtors Chief  Executive  Officer, detailed the events leading to Gorham’s Chapter 11 filing. The Arnold Declaration provides: “Prior to the Petition Date, the Debtors explored a range of options to address their ongoing challenges related to maintaining sufficient cash flow to satisfy their debt and operational obligations. Ultimately, due to cash flow concerns and the monetization process established under the global settlement agreement entered into the Zohar Funds’ chapter 11 cases, the Debtors, together with their advisors and, in particular, their investment banker, B. Riley Securities, expended significant efforts marketing the Debtors’ assets in the months leading up to the Petition Date. This marketing process included significant mailings and calls to targeted, industry specific, potential buyers that the Debtors and their advisors believed might be interested in discussing a potential purchase of the assets. Following the Debtors’ receipt of indications of interest from several potential buyers, the Debtors began to engage in advanced discussions regarding a potential sale transaction for some or all of the Debtors’ assets with such parties, including through a sale under § 363 of the Bankruptcy Code."

Prepetition Indebtedness

As of the Petition date, the Debtors owed borrowings under: (x) the GPT Credit Agreement in a principal amount not less than $48,871,090.31, and (y) the WMT Credit Agreement in a principal amount of not less than $51,568.627.00, plus accrued but unpaid interest, fees, costs and expenses 

The following is a summary of the prepetition debt of the lead Debtor under its 2011 "GPT Credit Agreement": 

Principal Balance

Type

Tranche

Lender

$30,000,000.00

Revolving Credit Loan

RCA

Zohar III

$18,871,090.00

Term Loan

DDTLB

Zohar III

$1,500,000.00

Revolving Credit Loan

RCB

ARK II

The following is a summary of the prepetition debt obligations of WMT (ie Debtor White Mountain Tissue):

Principal Balance

Type

Tranche

Lender

$11,000,000.00

Term Loan

TLA

Zohar III

$10,568,627.00

Term Loan

TLB

Zohar III

$3,365,220.00

Term Loan

N/A

BONH

About the Debtors

According to the Debtors: “Gorham Paper and Tissue started in May of 2011 when funds managed by Patriarch Partners purchased the former Fraser Papers facility. The legacy of Gorham is extensive, dating back to 1852 when the operation opened as a saw mill. Over the years, numerous companies owned the operation, building a foundation of process, innovation and papermaking expertise. 

The Arnold Declaration adds: "The Debtors manufacture towel and tissue parent rolls for “at-home” and “away-from-home” (i.e., commercial or industrial) markets.

For the at-home market, the Debtors manufacture parent rolls for the production of bath, facial tissue, towels, napkins, and other paper products. For the away-from-home market, the Debtors manufacture parent rolls for the production of industrial towels and wipes, hard wound towels, and multi-fold towels. For at- home, bath and tissue products, production is run through the “TM06” dry crepe tissue machine, which was purchased in 2012 by WMT and has an annual capacity of 36,000 tons/year. Production for away-from-home products is run through the “PM09” towel machine owned by GPT.

The Debtors’ site, which encompasses over 60 acres along the Androscoggin River in Gorham, Coos County, New Hampshire, also includes pipelines, warehousing space, multiple boilers, and a waste treatment center. Overall, the mill facility can support more than 150,000 tons of product per year. The Debtors experienced total net sales in FY2019 of $31,900,000.00 in the at-home market and $23,401,800.00 in the away-from-home market.

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