Logging contractors lose financial backing

Loans called for up to 35 British Columbia coast operators after financier goes into receivership

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By Gordon Hamilton, Vancouver Sun September 1, 2009

Up to 35 contract loggers on the B.C. coast are having their loans called now that Nanaimo financier Forest & Marine Group has gone into receivership.

"There's going to be a lot of forced liquidations," said Kevin Mason, investment analyst at Equity Research Associates. "People are going to be scrambling around looking for alternatives."

But there's nowhere else for coastal logging companies to turn. Logging is almost at a standstill and financiers are generally saying they want more security -- specifically a guaranteed fibre supply -- before they will loan money to the industry, Mason said. Contract loggers generally cut timber for major licensees or the B.C. government's own timber sales program and do not have a guaranteed fibre supply.

Forest & Marine was considered the financier of last resort for the cash-strapped coastal logging industry. It was founded in 1983, in the depths of a severe province-wide recession. But this time, the downturn has proven too much for it to weather without financing of its own, said Forest & Marine president David Hitchcock. He said Monday that court-appointed receiver Bowra Group is now running the company and is in the process of winding it down.

Forest & Marine had been under court-ordered creditor protection when its prime creditor, Ontario liquidator Asset Engineering, called its loan. F&M sought alternative financing through the federal Business Development Bank of Canada. but the FDBC backed away when the B.C. government refused to sign a loan guarantee.

Mason said as painful as that decision is for the logging contractors now being forced to repay their loans, the province would be seen as playing favourites if it stepped into protect the coastal forest sector.

Forest & Marine owes $19.1 million to its secured creditors.

Additionally, 160 people, mostly Vancouver Island residents involved in the logging industry, have $7 million in RRSPs with Forest & Marine.

Hitchcock, who has his own RRSP with the group, said it's unknown at this point how much will be left over to pay out RRSPs.

Forest & Marine has loans with 35 forest contractors employing more than 800 people. A year ago, its loan portfolio was over $60 million. By March it was down to $43 million. But because of the collapse of the forest sector, only one-third of the loans were in compliance with the original terms and conditions. An Aug. 10 report on the current value of the loan portfolio showed it to be worth between $8.6 million and $18.8 million. It also has real estate valued at $5 million.

The receiver was appointed Aug. 18.

"We have already started down the path [of calling loans]," Hitchcock said. "We've told them it's in everybody's best interest if they found some alternative financing. But everybody is saying the same thing: the banks aren't loaning to the forest industry."

Dave Lewis, president of the coastal Truck Loggers Association, said with so much of Forest & Marine's loan portfolio not performing, other institutions are likely to be wary. He said even performing loans are being called, putting greater strain on sound logging companies.

"If these guys go out of business because they are foreclosed on it's going to drop our capacity. If the industry rebounds, there is going to be a need for capacity that won't be there," Lewis said.

The impact of the collapse of Forest & Marine remains to be seen, he said. So far, because so few loggers are working, "it has been lost in the shuffle."

ghamilton@vancouversun.com

Additional Information

Web Site: http://www.vancouversun.com

Category: Forestry>Industry Trends

Region: BC - Canada

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