Bond-financed Maine insulation company files for bankruptcy

Courtesy University of Maine

A wood fiber insulation company financed with tax-exempt bonds is now in bankruptcy.

Maine-based TimberHP has $85 million of outstanding green bonds issued in 2021 through the Finance Authority of Maine for its GO Lab Madison project, which converted an abandoned paper mill into a factory for wood fiber insulation. 

The company filed for voluntary, pre-negotiated Chapter 11 bankruptcy on March 25, according to a disclosure notice filed on the Municipal Securities Rulemaking Board's EMMA website. The company hopes the reorganization will strengthen its financial position, according to a press release. 

"TimberHP is grateful to its sales partners, vendors, employee partners, and bondholders for standing by the company through this challenging, but necessary process," CEO Matthew O'Malia said in the release. "TimberHP has an incredible product line, and we are pleased to have the support and capital required to execute our business plan and address the growing demand for sustainable insulation materials in the U.S. construction industry." 

Operations will continue uninterrupted, the press release said. 

A notice earlier this month notified bondholders of an event of default and the reorganization plan related to the bankruptcy. 

"Due to the event of default, the principal and interest on the Series 2021 bonds shall become due and payable immediately without further action or notice, notwithstanding anything in the series 2021 bonds or herein to the contrary," the filing said. 

The bonds' original maturity date was in 2051. According to the company's legal filings, holders of the Series 2021 green bonds will be entitled to vote to accept or reject the reorganization plan. 

If bondholders elect to participate in the exit financing, they will receive tax-exempt Exit Green Bonds "in a principal amount equal to twice the amount of exit financing provided by such participating bondholder," the disclosure statement said. Half of the exit green bonds will be attributed to the exit financing and half of the amount will be attributed to a reissuance of the respective green bond claim held by the participating bondholder. Participating bondholders will also receive a pro rata share of the new membership interest.

Each non-participating bondholder will receive 2% of their claims, the filing said.

TimberHP had a hearing in bankruptcy court on Monday where the court considered a disclosure and solicitation motion, according to an EMMA filing. 

UMB Bank is the trustee for the bankruptcy and ArentFox Schiff is the trustee's counsel. TimberHP is working with Jefferies as its financial advisor and Mark Felger of Cozen O'Connor as its counsel, according to the press release, which said bondholders agreed to $29 million of further investment.

Citi underwrote the unrated 2021 bond issue.

The company aimed to bring wood fiber insulation, popular in Europe, to the U.S. The company was founded in 2017 and purchased its factory in 2019 with plans to manufacture three types of insulation. 

TimberHP issued the bonds in 2021 to fund construction of the three production lines. It opened the first two production lines in 2023, but construction of the third line, which it hopes will be the most profitable, has been stymied by more than $30 million of cost overruns and construction problems for several years.  

The company's audited financial statement from 2023 noted it was in default of construction contracts and owed $13 million to contractors. 

"The Company's significant operating losses and net working capital deficits raise substantial doubt about the Company's ability to continue as a going concern," the audited financial statement said. 

In 2024, with the proceeds of the bonds fully spent, the company fell behind on more construction contracts and sought more sources of financing, according to an independent engineer's report posted to EMMA. 

It received a $500,000 loan from the Finance Authority of Maine at the beginning of 2024 and made an unscheduled draw on its debt service reserve in June. 

A default notice from April 2024 informed bondholders that the third production line was 90% completed and was held up by "remaining electrical and duct work" which needed to be finished "before commissioning can begin." At that point, the company still believed the completion date would be in the third quarter of 2024.

The company received an indication of interest from a potential investor in September of 2024. It also received a $3 million forgivable loan from the Somerset Economic Development Corporation in December to keep the lights on while it negotiated with the investor, according to the local Morning Sentinel news site. 

But in February, plans with the potential investor collapsed and TimberHP began pre-negotiating its bankruptcy with stakeholders.

TimberHP has received strong support, financially and politically, from Maine's local and state governments and federal officials. 

The federal government approved the company for a $16.8 million credit for equipment, which it will be able to claim once its final production line is in service.

After the bankruptcy, Maine officials told the Morning Sentinel they still hoped that the company would land on its feet. 

"I remain optimistic about its future and will continue to root for its success," Gov. Janet Mills said in a statement to the Morning Sentinel.