Appvion workers to lose millions in sale
ROARING SPRING — Current and past employees will be the big losers if the sale of Appvion Inc. goes through as proposed.
The Appleton, Wis.-based company announced Feb. 8 that it had filed a motion in the U.S. Bankruptcy Court in Delaware for approval of a “stalking horse asset purchase agreement bid” from a group of its lenders to acquire substantially all of Appvion’s assets in a sale process under Section 363 of the Bankruptcy Code.
The company, which filed for bankruptcy protection in October, reported total liabilities, including short- and long-term debt, of about $745 million at the time the filing, said Bill Van Den Brandt, Appvion spokesman.
The massive list of those filing claims against the company include former company CEOs Douglas Buth and Mark Richards as well as former managers of the Roaring Spring mill, John Q. Showalter and Jerry Wallace.
“The purchase offer we recently received from a group of our current lenders would remove approximately $500 million of secured debt from the company’s balance sheet and enable Appvion to emerge from bankruptcy as a healthier and financially stable enterprise. The current purchase offer is subject to the filing of competing bids for the company,” Van Den Brandt said.
In a letter to company employees, current CEO Kevin Gilligan wrote “under the purchasers’ offer the current ESOP (Employee Stock Ownership Plan) structure would not continue and your interests in the ESOP will not have any value.”
About 2,000 employees purchased the company from European-based Arjo Wiggins Appleton in November 2001.
The employees put up $107 million of their 401(k) money and borrowed about $540 million to buy the company, said Mitchell Becker, president of United Steelworkers Local 10-0422, which represents about 370 of the 450 workers at the Roaring Spring mill.
“The people who put up the $107 million in 2001 and were continuing to invest, all of that money will be lost. That money will be long gone if the sale goes through. A large group of us took all that we had in our 401(k) and said yes, you can take it. I will be losing six figures. We had some guys put in their entire retirement, some over a half million dollars. When we bought the company, we were investing to save our jobs,” said Becker, 52, an employee since 1996.
“When we put the money in, I knew it was an investment and it was risky, but it was the right thing to do. The alternative was there would not be a mill. I don’t regret doing that,” said David L. Long of Destin, Fla., who retired in 2015 after 41 years at the mill, most as purchasing manager. “There are about 2,000 people who own stock, close to $40 million will be evaporated. There are people who lost over half a million dollars.”
The company is in an unusual position, said an ESOP expert.
“ESOP bankruptcies are extremely rare. In 2009-2013 we did a study of ESOP loan defaults and only two per thousand per year defaulted, vastly lower than, say, private equity purchases on companies on their debt. Overall, ESOP companies perform a lot better than non-ESOP companies and employees are both paid more and have about 2.2 times the work-related retirement assets,” said Corey Rosen, founder of the National Center for Employee Ownership, a nonprofit research organization that provides information on ESOPs.
“Appvion’s ESOP was a bit of a rare bird in that employees actually put their own money into the ESOP via their 401(k) plan assets. I see that happen maybe one in every few hundred cases. ESOPs are normally all company money,” Rosen said.
Another issue concerning employees is the pension plan.
Gilligan wrote that under its offer, the purchaser would not assume any liability for the pension plans. “Those plans would be taken over by the Pension Benefit Guaranty Corp., a federal government agency that guarantees payment of basic pension benefits earned by millions of American workers and retirees,” Gilligan wrote.
“What that means is we quit accruing seniority to years of service toward our pension. We have 22 employees in the pension plan who have less than five years of service; they are not vested. The pension will not recognize them because they are not vested,” Becker said.
Becker has other concerns about the proposed purchase agreement.
“Our No. 1 issue is our contract is not listed as an assured contract on the purchase agreement. We want them it to recognize our contract and the language in it. They want all employees to be at-will employees, meaning they can fire you at any time,” Becker said.
Employees are frustrated, Becker said.
“We feel the company has been mismanaged since the ESOP was formed in 2001,” Becker said. “I am frustrated I will lose my money. In 2001 if we knew where we would end up today, we would not have invested and let the company be sold to a private buyer.”
Long said he doesn’t like the way the sale is being conducted.
“I am not objecting to the sale. The way it is being done through bankruptcy is causing issues. We don’t know who the owners are going to be. Will they be permanent owners or break it up. They are an unknown entity,” Long said. “The alternative to new ownership is Chapter 7, closing the company, that would be worse for the company and the employees.”
Both Becker and Long dispute company claims that it is “business as usual” as the possible sale looms.
“Appvion is continuing to make paper and sending it out the door. The employees go to work and do the best they can, but it is not business as usual. For every penny we spend, we have to answer to someone,” Becker said.
“That is not true. They are trying to say they are making products and shipping out products; it is probably true. Suppliers lost money; there are issues with creditors. It is an irritating statement for me. It will not be life as usual,” Long said. “The company will be different; the uncertainty of the future is keeping a lot of people awake at night. People are making changes to their retirement plans; their lifestyle will not be the same. What is being overlooked is the human angle about people losing their retirement. It is not business as usual. The human aspect of this is devastating.”
Long said he believes the company hasn’t been honest with the employees.
“I would say they have not been transparent. Information in their SEC filings or court documents at times does not agree with the official communications from the company’ it is inconsistent,” Long said.
“I won’t say they haven’t been honest with us, but they have always tried to paint a prettier picture than what it is,” Becker said.
The mill is not likely to close.
“The chance of the mill closing is slim. Someone wouldn’t purchase us for $325 million and close the doors. They could split the company. They announced they were moving the sheeting operation here; that is still in the works. Anyone purchasing us would want to continue with that project because it is cost-efficient,” Becker said.
Appvion had announced in November that it would consolidate the majority of the carbonless paper coating and rewinding operations currently performed at its plant in Appleton, Wis., to its integrated pulp and paper mill in Roaring Spring.
The company also would relocate the Appleton plant’s sheeting operations to an Appvion-operated facility near the Roaring Spring mill.
Staffing at the Roaring Spring mill was not to be affected by the plan, but the relocating of the sheeting operation could lead to local jobs, Van Den Brandt said.
Van Den Brandt said the proposed sale will not affect the consolidation efforts.
“The transition process will continue, and we expect to complete the consolidation of our carbonless coating and rewinding operations by the end of 2018 or shortly thereafter,” Van Den Brandt said.
The court is scheduled to consider the proposed bid procedures on Thursday. Appvion has requested authorization to proceed with an auction on April 23, provided the company receives qualified overbids.
The company would then select the best bidder for the ongoing business at the conclusion of the auction, as applicable, and seek approval of the sale to the purchaser, or the successful bidder, at a hearing shortly thereafter.
“The biggest frustration is not knowing,” Becker said.
Mirror Staff writer Walt Frank is at 946-7467.