Ketchikan plant finds stable veneer market

PHOTO/Journal file
Despite start-up financial problems, Gateway Forest Products Inc., the Ketchikan-based company manufacturing wood veneer from low-grade timber, is finding good markets for its product in the Pacific Northwest.

On Dec. 6, Alaska Industrial Development and Export Authority’s board approved participation by the state authority in a $10.6 million refinancing for the company, which will also involve Wells Fargo Bank, KeyBank Alaska and the U.S. Department of Agriculture.

Meanwhile, the company is operating one shift, having cut back from two shifts earlier this fall when sales slowed for wood chips, a byproduct of the manufacturing process. When low-grade logs are used to make veneer, what’s left is made into chips.

With slower sales, Gateway ran out of storage space for chips and was forced to cut back. The company hopes to return to two shifts this spring, according to Cliff Skillings, the company’s marketing director.

Gateway, a local company formed in 1999, purchased land and industrial properties from Ketchikan Pulp Co. when it closed its pulp mill and built a plant to make wood veneer, a product used in making many manufactured wood products.

"We’re still in our start-up mode," Skillings said. "It takes 10 to 12 months to start a plant like this," to work through the inevitable kinks in operations, he said. The company has had to do some upgrades in its computerized plant process, and the softening of the chip market has also adversely affected Gateway.

In the midst of its construction and start-up, the company ran into financial problems when construction costs came in higher than expected and the start-up of the plant was delayed.

Just after beginning operations early this year, Gateway filed for bankruptcy protection and has been working on a reorganization and refinancing plan since.

Meanwhile, the plant has continued to operate. Unlike lumber and wood chips, the markets for veneer, the company’s main product, are good and stable, Skillings said.

Operating at one shift, Gateway ships a barge load of veneer product every three weeks from Ketchikan to the Port of Seattle’s Terminal 7.

The company has a three-year contract to sell its veneer to Timber Products Inc., of Eugene, Ore., which then markets the product to a variety of other customers in the Northwest.

Most of the veneer traditionally used in the Northwest has been made from Douglas fir, the most common softwood in the region. The veneer made in Ketchikan is mostly from Western hemlock, but it has compared well with Douglas fir in strength tests, Skillings said.

Some veneer has also been made from spruce, which has a lighter color that has pleased some customers, he said.

When Gateway returns to two shifts, it will put another 20 people back to work, Skillings said. With one shift and maintenance and administrative support staff, Gateway now employs about 70 people in Ketchikan, he said.

Taking into account the softening of the chip market and the cutback to one shift, "Gateway is basically on its business plan," said Jim McMillan, deputy director of Alaska Industrial Development and Export Authority, a state development corporation that is involved in a refinancing plan for the company.

KeyBank Alaska, Wells Fargo, AIDEA and the U.S. Department of Agriculture have agreed to a $10.6 million refinancing plan for the company.

A recent foreclosure action by the Ketchikan Gateway Borough on some of Gateway’s assets involve another part of the company, not the mill itself, McMillan said.

In its bankruptcy reorganization, Gateway essentially split into two companies. One operates and owns the veneer plant and property related to it. A second owns other industrial properties acquired from Ketchikan Pulp Co., including warehouses and dock facilities.

Gateway’s reorganization plan, which is expected to be approved soon in U.S. Bankruptcy Court in Anchorage, has these properties held as collateral against $14 million in loans by the borough to Gateway, and remaining debt held by Ketchikan Pulp, a subsidiary of Louisiana Pacific Corp.

The foreclosure action by the borough against that property, which doesn’t include the mill, is mainly an effort to position the municipality as a creditor in the bankruptcy proceeding, McMillan said.

Meanwhile, the refinancing of the veneer mill venture itself should be concluded by the end of the year, he said.

KeyBank and Wells Fargo have agreed to share the loan. KeyBank asked AIDEA to participate in a part of its share of the loan. The loans would be for 10 years.

The U.S. Department of Agriculture would guarantee these loans under the federal agency’s rural development loan programs. In addition, KeyBank and Wells Fargo will also share a $1 million operating loan. KeyBank asked AIDEA for an 80 percent guarantee of its share of this loan under the authority’s business and export assistance program.

KeyBank and Wells Fargo approved their share of loans and AIDEA’s board approved the deal Dec. 6, McMillan said.

The entire refinancing, however, depends on a favorable decision on guarantees by the U.S. Department of Agriculture. This is expected in mid-December, McMillan said.

Updated: 
12/16/2001 - 8:00pm

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