By Monica Shaw
ATLANTA,
Jan. 30, 2008
(Viewpoint) -
The emergence of Lincoln, ME’s paper and tissue mill has occurred through a “series of amazing improbabilities,” says Keith Van Scotter, president and CEO of Lincoln Paper and Tissue LLC (LP&T). The parent company of the Lincoln mill, Eastern Pulp and Paper Corp, filed for bankruptcy in 2000 and operated that way for more than three years until the owners and creditors were unable to agree on the restructuring plan, at which point the mill shut down in January 2004.
A concerted and cooperative effort between new owners, employees, the Governor of Maine and creditors transpired, however, to allow completion of a highly leveraged bankruptcy court sale of the mill. LP&T was created and 320 people were put back to work in a town of just 5,000. After one year in operation, a refinancing was completed that provided the capital to construct a new tissue machine.
“Restarting the mill required a massive cultural and operational change, and we’ve take some body blows on this journey,” says Van Scotter, “but we remain focused on continuously improving our business at a faster rate than the competition. An upward trend in business only lasts if you put forth constant effort.”
Today, LP&T produces specialty bonded white and deep-dyed tissue, as well as 33,000 tons/yr of commodity white towel and napkin for converters serving the away from home (AfH) market, although all the company’s tissue products are positioned as premium. The parent rolls are produced on three tissue machines, one of which was installed in 2006 - a testament to the new company’s success. The mill also makes 80,000 tons/yr of specialty high bulk uncoated freesheet (UFS) printing papers.
After the 2004 restart, the mill quickly turned cash flow positive, and the success has been ongoing. According to Van Scotter, LP&T has achieved a consistently strong top line revenue growth, primarily through the construction of the new tissue machine, but needed to continue driving growth beyond that which could be derived from installing new capacity.
“Some people felt the paper industry was dying in Maine, but we’ve shown that it is a very viable business if managed correctly,” Van Scotter describes. “We put in a new machine to take advantage of excess pulp capacity and grow the business, but we still need to drive improvement without spending a lot of money, which means we must pick our battles carefully.”
To sustain the mill’s upward trend, Van Scotter turned to multi-variable testing (MVT) to address bleaching cost and formation issues. Van Scotter, whose background is in engineering, had previously used MVT and found “the tools and techniques very cost effective and powerful in solving complex problems.” As a result, LP&T has encouraged a culture of teamwork, reduced bleaching costs and improved UFS printability.
Against Formidable Odds
The sequence of improbable events that revived the Lincoln mill began in mid 2004, but only after a somewhat eventful past. The site started with a sawmill in the 1850s, followed by wood pulp production in the 1880s and a pulp dryer in the late 1800s. In the 1920s, paper machines were added, but the mill went bankrupt in 1968, after which it was purchased and restarted for specialty tissue production. Major upgrades were undertaken in the 1970s, 80s and 90s, but the mill was idled in late 2000 when owner Eastern Pulp and Paper filed for Chapter 11 bankruptcy, operating in that state for more than three years until the mill was idled in 2004.
As Van Scotter notes, the ensuing attempts to pull the company out bankruptcy should be viewed in context of the 2001-2003 time period, when strong currency, rapidly increasing imports and economic conditions signaled a bleak future for the North American paper industry. Maine alone had seen three high-profile paper industry bankruptcies, so the climate was harsh for attracting investment.
In late 2003, Eastern creditors brought in John Wissmann, a forest products consultant, to assess the situation. The creditors determined they wanted new leadership, so Wissmann contacted Van Scotter as a potential candidate. When a deal for handing over the company to a turnaround firm fell through, creditors filed for Chapter 7, essentially calling for an auction to create a “stalking horse bid,” says Van Scotter.
But it wasn’t that easy. The bidder withdrew the offer, and creditors sought to abandon the assets in the freezing February temperatures. In stepped the Governor of Maine, John Baldacci, releasing state funds to keep the mill from freezing and ruin with heating until a deal could be made … or could it?
Wissmann, Van Scotter, and Rod Fisher formed a partnership, First Paper Holding LLC, and began working with an equity group that ultimately was unable to supply the required funds. Instead, First Paper put together a highly leveraged purchase of the mill, to be known as Lincoln Paper and Tissue LLC, by working with creditors from February through May of 2004 to iron out the deal. Van Scotter was slated as president and CEO, while Wissman would serve as CFO.
Once again, though, challenges abounded. Because the assets were abandoned, they were not under jurisdiction of the bankruptcy court, and the judge, weary from more than three years of infighting among creditors, refused to reinstate bankruptcy unless all parties agreed to the deal.
“We had to cut 25 bilateral deals between the new company and at least 25 creditors, and we were working with a finite pool of money,” Van Scotter describes. “We had to be up front about what we could and could not give them. Getting 25 lawyers to agree on anything is almost unheard of, and our lawyer said it was the first time a company had been pulled from abandonment back into bankruptcy to affect a sale.”
In fact, one of the original creditors put up additional capital to assist the deal. Additional funds were raised with loans from the US Small Business Administration, Finance Authority of Maine and Eastern Maine Development Corp. On April 30, the bankruptcy judge approved the $23.7 million dollar purchase by First Paper.
“We modeled what it would take to restart the mill on a week-by-week basis, because we needed funds to produce and ship product, while not getting paid for up to 45 days,” explains Van Scotter.
Another important factor in forming LP&T was the need to reach a new labor agreement. “We let the union know what we needed to make this deal work and then crafted a labor agreement in six days, put it to vote and it passed on the first go-around – another improbability,” Van Scotter notes.
The deal closed on May 28, 2004, with employees waiting at the gate to restart the mill, because the sales force had taken enough orders to fill the books while waiting for completion of the deal.
“Our sales force was committed to booking orders, because we knew we had to hit the ground running,” Van Scotter says. “In fact, we hired an entire management team on the same premise.”
No Margin for Error
LP&T, as Van Scotter describes, is “not a large mill, but it is a complex one.” The 161,000-ton/yr bleached kraft pulp mill features two continuous digesters, one bleach line, a recovery boiler, lime kiln and pulp dryer. The company's trademarked envirO2 oxygen bleaching process allows the company to create low weight, bright white papers without the use of elemental chlorine.
For power, the mill runs a 1.6 mm lb/day recover boiler with a steam capacity of 235,000 lb/hr, as well as a biomass boiler. Two oil-fired package boilers serve as backup. The mill has a little excess recovery boiler capacity and actually “liquor swaps” with a nearby mill, taking in its black liquor and sending back green liquor while recovering extra chemicals and energy in the process.
In the paper mill, the machines were smaller and older at the time the mill was restarted. LP&T had two UFS machines: the 44,000 ton/yr, 98-in-trim PM 4 and the 33,000 ton/yr, 96-in-trim PM 5. LP&T also had the 20,000 ton/yr, 94-in-trim PM 6 tissue machine and the 20,000 ton/yr, 104-in-trim PM 7 tissue machine, both of which were used to produce deep died and pastel colored tissue and bonded white napkin.
LP&T management felt that if the mill could survive operationally and financially for the first 90 days, the restart would be a success, although there was “no margin for error,” says Van Scotter. The first sign of victory was a restart of the PM 7 tissue machine within five days of the deal closing. By June 14, the pulp mill, pulp dryer, two tissue machines and one UFS were productive, and by July 7 the final UFS machine was running. At nine weeks from the restart, the mill was cash flow positive.
Party goods producers and food service companies use LP&T’s deep-dyed and pastel tissue to create napkins, towels, table covers and other specialty tissue products. Although a small portion of the overall US tissue and napkin market, these products have steady demand and are well-suited for the mill’s smaller, older machines.
Serving another niche market, the mill’s 80,000 ton/yr specialty UFS is used by magazine publishers and direct mailers for premium quality business reply cards, index and vellum bristol.
“We are the largest strategic producer of business reply card stock in the US, although this makes up a fraction of the larger uncoated freesheet market,” explains Van Scotter. “The US Postal Service says the sheet must be 0.007-in thick after printing, so we benefit from using sawdust in our furnish, which we believe yields a lighter, but bulky sheet.”
Refinancing for Success
Several months after the mill restart, Wissman and Van Scotter attended a conference and were approached by potential tissue customers. “We’d been sold out on tissue since the restart, but it was becoming clear that we needed to use our excess pulp capacity to expand the tissue business,” Van Scotter says.
Although LP&T’s short track record was good, $40 million for a new tissue machine was impossible within First Paper’s existing financial profile. The search for an equity partner began, ending in August 2005 when PCG Capital Partners, the private equity investment arm of Pacific Corporate Group LLC, a California-based investment management and advisory firm, invested approximately $35 million in subordinated notes and equity. Management also invested $1 million of equity in this transaction.
LP&T then chose to purchase a Metso Advantage DCT 100 HS compact tissue machine to produce 33,000 tons/yr of commodity white napkin, towel and tissue for the independent converter market. The 104-in-trim dry crepe tissue machine has a design speed of 2,000 m/min, a 15-ft Yankee dryer and an OptiFlo II TIS 2200 headbox. The company also purchased a 2,000 m/min Focus rewinder.
“Metso had the leading market share and came in with a very nice offer for the compact, well-designed DCT machine,” says Van Scotter regarding technology selection for the new tissue machine. “The value equations looked very good to us.”
The new PM 8 started up in August 2006 and was celebrated by Maine’s entire federal congressional delegation, state representatives and Governor Baldacci. “It was the first new paper machine in 20 years for Maine,” says Van Scotter. “It was a great day for this state.”
MVT Moves the Bar
With installation of PM 8 and sales growing at a compounded annual rate of 15%, LP&T’s performance was on an upward trend. This was good news, but not enough in a tough competitive environment where LP&T was a small fish in large pond.
“Business trends don’t last forever, and we needed a way to stay ahead of our competition by addressing complex problems without a lot of people and money,” Van Scotter explains.
To improve mill processes, LP&T chose to use multivariable testing (MVT), a statistically-based testing methodology (see P&P, March 2001, p. 43). Based on impressive results he saw while at another paper company, Van Scotter brought in consultant Art Hammer from QualPro, which had developed a 12-step MVT approach that has been used for more than 20 years for improvements in a variety of industries.
Using the traditional scientific method of changing one variable at a time and holding all others constant can result in an unrealistic number of test cases. For example, 10 variables designated as relative to improvement result in more than one million unique combinations, any one of which could bring the desired outcome. With MVT, statistically-designed "recipe" combinations limit the number of test cases, selecting the best combination of variables for improvement.
LP&T began its MVT work in November 2005, starting with “big payoff projects,” says Van Scotter. The first two projects addressed reduction of bleach plant costs and formation on PM 4. While it took time for employees to buy in to the power of MVT, Van Scotter reports that the results from these projects now have employees from management to operations requesting involvement and producing ideas for MVT trials.
“MVT is going to be a way of life for us, and it is going to be one of our key tools to drive improvement,” Van Scotter emphasizes.
Reducing bleach plant costs: Producing pulp provides LP&T a level of cost certainty as compared with competitors, but rising chemical costs were offsetting this benefit. The goal for the bleach plant MVT was to reduce cost without hurting brightness or viscosity.
An MVT team was formed with members from operations, management and QualPro. Four key measures were decided upon for the MVT: chemical costs, pulp strength (viscosity), pulp strength (zero-span tensile) and (GE, CE) brightness. For each pulp parameter measure, the MVT team had to determine the frequency of testing, process stability and what variation should be attributed to the process vs the test.
Taking into account the key measures tested, the team determined that each trial should run 24 hours. Next, the team came up with ideas to test, such as changing the levels of caustic, magnesium sulfate and other chemicals. At the outset, 48 ideas were narrowed to 30, but, when other process disruptions were considered, the number was reduced to 18 to fit the trials into the January-April 2007 timeframe.
The trials yielded interesting results, and many ideas for reducing costs did not pan out. Three of the 18 ideas helped costs, six hurt costs and nine were insignificant.
“The trials proved some assumptions, but also disproved many assumptions that had long been held,” says Marco L'Italien, LP&T pulp and utilities director. “I wish we had had MVT 20 years ago, because it has made a big difference in our capabilities.”
Some results were contrary to what was assumed. Using more caustic as a means of saving expensive bleaching chemicals actually ended up increasing costs. Other ideas panned out, such as the belief that higher production rates increased the cost per ton. Also, shutting off magnesium sulfate reduced costs as expected, but affected pulp strength.
Next, with ideas and enthusiasm increasing in the bleach plant daily, the team ran a second MVT to refine the factors. This time, 40 ideas were narrowed to 18 (Table 1). Some factors were ahead of the bleach plant, such as NP tower dilution, which has shown to have a big impact on costs. Consistencies there are currently being further refined.
Also, caustic was decreased from the first MVT trial increase, and the second MVT refinement showed costs continued to decrease. Magnesium sulfate was not totally cut off, but just halved, which did not hurt viscosity. Figure 1 shows the results from some of the changes made in the bleach plant during the second MVT.
Improving UFS formation: “Our sheet was the thickest for a given weight compared with our competitors and the customers liked that, but we were also the worst printing sheet with the worst formation,” says Van Scotter of LP&T’s UFS products. “It was our single biggest product weakness.”
Formation on the mill’s PM 4 was the worst, and many felt the machine was incapable of better performance without a major rebuild. To address the problem, LP&T formed an MVT team made up of managers, operators, safety, technical and product development personnel. With 500 years of collective papermaking experience, says Van Scotter, there were many preconceived notions about what would help PM 4’s formation.
The team came up with 32 recipes and ran two MVT screenings and a refinement over the course of three days. The changes made as a result of the MVT improved formation by 70% as measured by instrument readings, which are corroborated by clear visual improvement.
Other MVT trials: To comply with the last phase of the Cluster Rules, LP&T designed its own high volume, low concentration brownstock washer gas collection system. Installed in April 2007, the system is “fairly unique and likely patentable,” says Van Scotter, and required much less capital than large gas collection systems.
To eliminate a performance issue related to carryover in the scrubbing system, LP&T ran a two-day MVT for the new gas collection system. Instead of having to spend $50,000 to $100,000 as expected, the mill found that it could address this issue without spending any significant amount of money.
Monica Shaw is a media relations strategist/writer with Carabiner Communications, Atlanta, GA.
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