1st Urban shuts down completely

August 08, 1997


Staff Writer

The 1st Urban Fiber paper recycling plant was shut down completely on Thursday and its remaining 53 employees laid off until a buyer can be found for the $250 million plant, officials said.

"We've made an offer to the bondholders to refinance the plant and they've turned it down and the bondholders will assume control of the plant," said 1st Urban Chairman Carl C. Landegger.

"It's going to be shut down for quite a lot of time," said Landegger as he was leaving City Hall after delivering the news to Hagerstown's mayor and city administrator.


"We lost a lot of money, but I'm much more worried about the people" who lost their jobs, said Landegger. He refused to say how much money he had lost in the plant.

The 1st Urban plant opened in October 1996 producing dried pulp from waste paper that is used to make colored paper, fine writing paper and other products.

Since opening, neighbors have complained about unpleasant odors, traffic and noise generated by the plant.

J.T. Atkins, financial adviser to the plant's bondholders, said Landegger is no longer interested in funding the operation.

The bondholders have $16 million in debt service reserves and need to raise another $10 million to $20 million in cash so they can repair and restart the plant, said Atkins, managing director for Oppenheimer & Co. in New York.

"The plant needs at least $6 million to $8 million worth of repairs to make it work properly," said Atkins. The plant's equipment has problems handling impurities from sticky substances, such as envelopes.

While the plant is supposed to be state of the art, Atkins said only one of four such state-of-the-art deinking facilities he is helping to financially restructure in the United States actually works the way it's supposed to.

"I still hope eventually that Mr. Landegger and his organization will be part of the restructuring plan to take over the facility," Atkins said.

"We're probably going to entertain proposals in regard to selling the plant, probably back to Carl," he said.

Atkins said the bondholders need to find a buyer willing to incur a significant portion of the $160 million the bondholders are owed.

Whoever buys the plant will probably rehire the roughly 95 employees laid off on Thursday and in April, Atkins said.

Company officials shut down the plant in April because the price for recycled pulp had plummeted since last fall. They had hoped to reopen in the first quarter of 1998.

The market for dried pulp is improving, city officials said. After falling from $800 a ton to $300 a ton, the price has risen to about $500 a ton, they said.

Robert Strasburg, 1st Urban's executive vice president, said Landegger had been trying to reach an agreement with bondholders for months and found out on Wednesday they were not interested in his offer.

In late July, Landegger wrote limited partners that it may be necessary to file a "prepackaged" Chapter 11 restructuring that would lead to a resolution with the bondholders, according Pulp & Paper Week, an industry trade newsletter. Under Chapter 11 provisions of U.S. bankruptcy law, a company is protected from its creditors during restructuring.

However, the arrangement hit a snag last week when an investment bank concerned with the financial situation bowed out of plans to sell $26 million in assets to attract new investors, the newsletter reported.

Officials with the engineering firm RW Beck will interview employees at the plant today to recommend who to rehire to maintain the plant during the shutdown, Atkins said.

A few employees interviewed Thursday said they were stunned by the shutdown even though they had heard unfavorable rumors about the plant's future.

Production Leader Norman L. Smeltzer blamed market conditions for the plant's demise.

"If the market would have turned around sooner we'd probably still be working," he said.

Smeltzer's last job, as a research engineer at Scott Paper, ended similarly after he had worked there for 23 years, he said.

Smeltzer, 47, moved his family to Greencastle, Pa., from Philadelphia 13 months ago to take the 1st Urban job. He has two daughters in college and a son in seventh grade.

He will get one month's severance pay and hopes to find another job in the area.

"Having two kids in school I just can't sit around," he said.

Former Mayor Steven T. Sager, who was instrumental in getting the plant built in the city, said 1st Urban's closure is unfortunate.

"There'll be a point when it comes back, but in the meantime it's very sad," said Sager.

For now, Pinkerton security guards are protecting the plant.

Mayor Robert E. Bruchey II said it was unfortunate that the bondholders voted to call in the bond.

Bruchey said he wasn't stunned by the plant's closing because he had spoken to Strasburg about three weeks ago about whether the company would be able to recover. Bruchey said Strasburg said it could have been done if the market price had risen to $650 a ton.

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