1st Urban Fiber placed in receivership

August 15, 1997


Staff Writer

Washington County Circuit Court Judge W. Kennedy Boone III put 1st Urban Fiber's $250 million paper recycling plant in the care of a receiver on Thursday.

The receiver will be responsible for mothballing and preserving the plant for sale and defending the plant against litigation, according to court documents.

"This company's been winding down almost since its inception," said attorney Joseph J. Bellinger of Miles & Stockbridge in Baltimore. Bellinger is representing First National Bank of Maryland, the trustee for the bondholders of the plant.


Officials with 1st Urban Fiber could not be reached for comment.

Boone awarded receivership to G. Richard Gray, president of Financial Conservators Inc. in Baltimore. Gray will be responsible for preserving the plant pending a possible sale.

The plant, which opened in October 1996, was to produce dried pulp from waste paper that is used to make colored paper, fine writing paper and other products. It closed on Aug. 12 indefinitely.

First National officials asked Boone to consider the receivership request in a closed conference, but Boone said he made the motion public because of its urgency and importance.

The owners were made aware of the proceeding, but chose not to attend, officials said.

"The bondholders want the plant to be in the same shape if not better," said Jay Smith, assistant vice president of First National's Trust Division.

Smith said the bondholders were seeking receivership because the plant's owners - Hagerstown Fiber Limited Partnership and general partner Pencor First Fiber Inc. - were in default.

The owners missed a semiannual payment to the bondholders for the $159.8 million in tax-exempt revenue bonds that the State of Maryland issued to build the plant, Smith said.

They also are in default because they ceased operations, fired employees and security, and left the premises, Smith said.

"It's not the kind of facility you can simply turn the lights off," said Bellinger.

In a July 31 letter to J.T. Atkins, financial adviser for the plant's bondholders, 1st Urban Executive Vice President Robert Strasburg wrote that all employees would be "indefinitely laid off" since no funding was available.

Security was terminated on Aug. 1 by Hagerstown Fiber, and the bondholders hired Pinkerton Security, according to Atkins and court documents.

On Aug. 7, 53 plant employees were fired. Forty other workers had been indefinitely laid off in April when the plant shut down.

At the time, company officials said the plant was being closed because the price for recycled pulp had plummeted since last fall. The officials said then that they anticipated reopening the plant in the beginning of 1998.

Hagerstown Fiber also was in default because the company's $15 million stabilization fund - to protect the plant during downturns in the market - had been used up in the first downturn, according to Smith and Atkins.

"They just chewed through the cash," Atkins said during a phone interview on Thursday.

Gray, as receiver, also must defend the plant against litigation, including a contractual lawsuit filed by Jefferson Smurfit Corp.

That lawsuit alleges that Hagerstown Fiber failed to pay Jefferson Smurfit for wastepaper supplied to the de-inking plant during its start-up and testing period, which ended Oct. 30, 1996.

Jefferson Smurfit is suing Hagerstown Fiber Limited Partnership, Pencor First Fiber Inc., SBCCS Constructors Joint Venture, Simons Engineering Inc., Black Clawson Partner Inc., Commonwealth Construction Co. and Sea Crest Industries for a total of more than $5 million for alleged breach of contract and other claims, according to court documents.

There also is an arbitration proceeding between Hagerstown Fiber and SBCCS Constructors, the company that built the plant, said Atkins, managing director for Oppenheimer & Co. in New York.

Hagerstown Fiber officials want $1.6 million from SBCCS to fix a wastewater treatment plant plus another $5 million to $6 million in liquidated damages for other claims, Atkins said.

SBCCS wants $6 million from Hagerstown Fiber, but is unlikely to get it since eventually Hagerstown Fiber will file Chapter 11 bankruptcy as part of its financial restructuring, he said.

Under Chapter 11 provisions of U.S. bankruptcy law, a company is protected from its creditors during restructuring.

The Herald-Mail Articles