Residents of working-class communities in six states reacted nervously to news that NewPage, the nation’s largest coated-paper manufacturer, on September 7 filed for Chapter 11 bankruptcy. The United Steelworkers, which represents NewPage’s unionized workers, said that it would seek a seat on the Creditor’s Committee to protect workers’ interest during the bankruptcy proceedings. NewPage, which employs about 6,000 people in the US, is owned by Cerberus, a private equity company that owned Chrysler when it declared bankruptcy in 2009.
The bankruptcy judge allowed NewPage to borrow $600 million from JP Morgan Chase so that it could continue operating its eight paper mills in Kentucky, Maine, Maryland, Michigan, Minnesota, and Wisconsin while the company seeks to restructure its $2.6 billion bond debt, most of which was incurred as a result of Cerberus’s 2005 leveraged buyout of the company. The company plans to sell another mill it owns in Nova Scotia.
United Steelworkers International Vice-President Jon Geenen said that “USW is not surprised by the announcement as the union has been closely monitoring performance of the company the past year.”
The company blamed its bankruptcy on foreign competition and declining demand for its product, but corporate greed and mismanagement seem to be even bigger culprits. In order to meet its heavy debt obligation and generate unrealistic profits that Cerberus promised investors, NewPage management committed serious blunders.
Yves Smith writing in Naked Capitalism said that “Cerberus set (NewPage’s) return on invested capital targets that were, to put it politely, audacious (and according to Smith, unlikely to be attained) for the paper industry,” and to meet these targets, NewPage scrimped on maintenance and repair of its machines, which resulted in a decline in the quality of its product, the shiny paper that appears in magazines and advertising flyers.
At the same time it was neglecting the mills that it already owned, Cerberus bought and shut down six other US paper mills owned by a Finnish company to dampen supply and drive up the price of its paper. Gregg O’Brien reports in Cape Cod Today that at least two of the shut mills in Wisconsin, one in Niagara and the other in Kimberly, had two interested buyers, but Cerberus refused to sell them. The shut downs cost Niagara, a town of 1,800, 319 jobs and Kimberly 600.
But the company’s strategy to drive up prices didn’t work. For the last five years, NewPage has failed to return a profit. In the first quarter of 2010, it lost $175 million. It did a little better in the first quarter of 2011 but still lost $88 million. Then in the second quarter it lost $132 million.
The company’s dismal track effort, however, didn’t preclude it from richly rewarding top executives who left the company. Thomas Curley, who served a scant four months as CEO before resigning to spend more time with his family, received $1.1 million in severance pay and a $165,000 performance bonus. Board chair Mark Suwyn received a $2 million golden parachute, and senior vice-president for marketing, strategy, and general management Mike Marziale received $650,000 in severance pay and a performance bonus of $243,000.
Meanwhile, NewPage workers and the communities where they live are nervous but hopeful that their jobs will still be there after the bankruptcy dust settles. One thing that gives them hope is that the demand for the coated paper that they produce has rebounded a bit after slumping.
“The economy was not good in 2009 and we easily matched our customers’ demands, which required us to stop production for short periods of time,” said Janet Hall, human resources director at NewPage’s plant in Rumford, Maine, to the Auburn/Lewiston Sun Journal. “That isn’t the case now and we are even bringing in new hourly employees this week.”
While NewPage workers keep their fingers crossed about their jobs, the bankruptcy filing doesn’t seem to have harmed Cerberus much; in fact, it seems to be doing quite well. Peter Lattman reports in the New York Times Deal Book that “after being battered during the financial crisis, and suffering sizable redemptions in its hedge funds, Cerberus has had vast improvements. Among successful investments, the firm has made a killing buying distressed mortgages at the market bottom.”