Gov. Paul LePage’s administration stood by Cate Street Capital on Wednesday, saying the New Hampshire-based investment firm that manages the paper mills in Millinocket and East Millinocket is not to blame for the bankruptcy filing by Great Northern Paper Co.

On Tuesday, U.S. Rep. Mike Michaud, LePage’s Democratic opponent for governor, had issued a statement saying he was “deeply disturbed,” and that Cate Street needs to explain its plan moving forward. Independent gubernatorial candidate Eliot Cutler also weighed in Tuesday, accusing Michaud and LePage of “embracing the empty promises and false hopes” of Cate Street.

George Gervais, LePage’s commissioner of economic development, countered those assertions about Great Northern’s operator on Wednesday, saying the filing changes nothing from the administration’s perspective.

“Our eye is still on finding someone to come in and invest (in the mills),” he said. “We have a few more obstacles now, but we can’t just walk away.”

The filing affects nearly 1,000 creditors – including both towns and the IRS – who are collectively owed $50 million.

Cate Street officials did not respond to several calls and emails from the Portland Press Herald, and no representatives were available when a reporter visited Cate Street’s Portland office Wednesday.

The LePage administration helped transition the property from its previous owner, Brookfield Asset Management, to Cate Street in 2011.

Brookfield bought the mills in 2003 and sunk $200 million into new equipment. But the price of oil used to generate steam for the papermaking process prompted Brookfield to close the Millinocket mill in 2008. Caught in the recession and facing a shrinking demand for paper, the East Millinocket mill was closed in 2009. By 2011, Brookfield was offering to unload both mills for $1 and set a July 31 deadline after which it would start dismantling the mills and sell them for scrap.

The state interceded and took ownership of the mills, hoping it could find a buyer that would restore lost jobs and taxes. Through a series of conditions that included a pledge to modernize and restart the East Millinocket mill, the state sold the mills to Cate Street in 2011. The East Millinocket mill resumed operations that September.

TOWN MAY NOT RECOUP BACK TAXES

In pressing Cate Street for its plans, Michaud singled out paying back taxes and debts as two issues that Great Northern’s operator needs to address.

“I expect them to do the responsible thing and make good on those obligations,” said Michaud, who lives in East Millinocket and worked in the mill for 29 years.

Tuesday’s bankruptcy filing has cast doubt on East Millinocket’s ability to recoup more than $650,000 in back taxes, a sum that represents about 10 percent of the town’s budget.

Because the town has not filed an official lien, it may be classified as an unsecured creditor rather than a secured creditor in the bankruptcy proceeding, weakening its standing among the 1,000 or so other creditors.

East Millinocket’s fate is one of many unanswered questions left in the wake of Great Northern’s decision to declare Chapter 7 bankruptcy and liquidate its assets, a move that could further weaken an economically struggling region. In January, Great Northern furloughed 216 workers at its East Millinocket mill and has been unable to restart operations – a prolonged shutdown that has dulled hopes of a local economic revival.

Cutler said that, if elected, he would travel to the region to develop a plan to revitalize the economy, in part by reviving forest products and tourism.

Cate Street’s role in the bankruptcy proceedings heads a list of unknowns that includes whether new investors would be willing to restart the idled East Millinocket mill and what happens to a planned renewable energy plant on the site of a dismantled sister mill in Millinocket.

OTHER DEBTS, OTHER DOUBTS

In addition to the $650,000 owed to East Millinocket, the town of Millinocket has issued tax bills totaling $1.3 million to Great Northern for the 2014-15 tax year. It’s not clear whether those will be paid.

Municipalities aren’t the only public creditors hoping for payment. In April, the IRS filed liens totaling $2.49 million against GNP West Inc., which manages the company’s Millinocket interests, and GNP East Inc., which manages the East Millinocket holdings. The IRS is listed in the bankruptcy filing as a creditor.

Depending on the structure of Cate Street’s management contract, a trustee appointed to oversee the bankruptcy could either continue the contract or reject it, limiting Cate Street’s role in the proceedings, said Hans Peterson, a Bangor attorney familiar with the mills.

The only thing that is certain at the moment, Peterson said, is that the bankruptcy process will take a long time.

Also unanswered is what impact the bankruptcy will have on an affiliated project in Millinocket also managed by Cate Street. A renewable energy plant that would make black pellets, called biocoal, for European markets was planned for the site of the Millinocket mill. Thermogen Industries, a subsidiary of Cate Street, has been trying to line up financing for the $140 million project, which needs wood waste to make its pellets. When Cate Street unveiled plans for the Thermogen project three years ago, it intended to use wood waste from the East Millinocket mill for its supply chain.

Representatives from Thermogen could not be reached for comment Wednesday.

Chris Roner, general counsel for the Finance Authority of Maine, which had committed $15 million in tax credits for the Thermogen project, said there has been no activity on that project for several months. Those tax credits won’t be triggered unless there is investment in the project that returns earnings to the investors.

Additionally, in April, Thermogen lost $9 million in state-backed financing when the board of FAME voted to reduce the amount of a bond it would sell on Thermogen’s behalf from $25 million to $16 million. Then on July 1, CEI Capital Management withdrew $20 million in expected financing through tax credit programs.