ANCHORAGE - The Alaska Industrial Development and Export Authority's board of directors denied a request for $10 million in financing Thursday by Gateway Forest Products, the company that owns Ketchikan's struggling veneer plant.
AIDEA executive director Bob Poe recommended in a letter that the state agency extend the financing. Though Gateway faces heavy debt load, volatile timber markets, political uncertainties over logging in the Tongass National Forest and other risks, the plant "appears to have excellent cash flow potential," Poe wrote to the board.
But state Department of Transportation Commissioner Joe Perkins said he had never been asked to approve a loan "with so many unknowns" in his seven years as an AIDEA board member.
When Randy Suref, an attorney for Foothill Capital, one of Gateway's creditors, said her firm would start liquidating Gateway's assets by summer unless AIDEA approved the loan, Perkins erupted.
"This is a business decision. I do not like to be held hostage like that," the commissioner said at the Anchorage meeting.
Gateway filed for Chapter 11 protection from its creditors in February, 16 months after it began operating. The company has not unveiled its reorganization plan and financial disclosure statement, though it plans to do so in U.S. Bankruptcy Court on June 29, said Spencer Sneed, an Anchorage attorney representing Gateway.
Sneed said he is confident the plan will satisfy the board's concerns and AIDEA will end up approving the loan. The AIDEA board agreed to reconsider the request again at a special meeting July 12 after studying the reorganization plan.
Gateway was founded after Ketchikan's pulp mill closed. The plant ran into financial problems early in 2000 and attributed them to declining veneer prices, construction delays and cost overruns.
Gateway owes creditors $38.8 million, including about $14 million to the Ketchikan Gateway Borough, Sneed said. The borough funds came from a congressional appropriation to buffer the Southeast's logging industry from declining timber harvests and poor markets.
The reorganization plan will allow AIDEA to invest in Gateway as a "stand-alone company," such as a limited liability firm or a subsidiary that is walled off from the heavy debt, Sneed said.
The board needs a lot more information before it can approve the project, said Chairman Wilson Hughes.
Perkins said investing in Gateway is extremely risky.
"I know of no other case that's been this gray as far as what's going to happen and what's not going to happen," he said.
Jim Erickson, a former Ketchikan pulp mill manager, said if AIDEA formally rejects the project next month, Gateway "will look at alternatives."
Suref said Foothill would not lend Gateway any more money unless the state agreed to participate. Gateway is seeking $14 million. Foothill would provide $4 million, and AIDEA would provide the rest. The loan would be secured with real estate, machinery, equipment, accounts receivable and inventory.