A federal bankruptcy judge on Tuesday approved the sale of the Great Northern Paper mill in East Millinocket to a Los Angeles-based investment firm for $5.4 million.

The mill’s fate, however, remains in question. The buyer, Hackman Capital Acquisition LLC, specializes in the purchase and sale of industrial properties and equipment. It did not reveal its intentions for the mill during the court proceedings, and messages left at its Los Angeles office got no response Tuesday afternoon.

The sale does give creditors an indication of how much money they can expect to recoup. Preliminary estimates show that unsecured creditors – most of the Maine-based vendors and suppliers who were left with unpaid invoices – will receive roughly 6 cents on the dollar.

Portsmouth, New Hampshire-based Cate Street Capital operated the mill for two years before high energy costs and shrinking demand for the newsprint it produced forced it to shut down in late January and lay off more than 200 people.

There had been hope that another paper company might be interested in buying the mill and restarting it, but those hopes weren’t answered Tuesday, when none of the bidders were paper companies or mill operators.

Hackman Capital Acquisition, a subsidiary of Hackman Capital Partners, was one of five qualified bidders that participated in the bankruptcy auction held Tuesday morning at the Penobscot County Courthouse in Bangor. Pasquale “Pat” Perrino Jr., trustee for the bankrupt Great Northern Paper, oversaw the auction.

After 30 rounds of “very competitive bidding,” which began at $2.9 million, Hackman Capital emerged on top with a bid of $5.4 million in cash, said Randy Creswell, Perrino’s attorney.

The second-highest bid, $5.1 million, came from GNP Acquisition, a subsidiary of Connecticut-based auction company Capital Recovery Group. GNP Acquisition will become the backup buyer if a deal with Hackman Capital falls through, Creswell said. The other qualified bidders in the auction were AIM Development, a Montreal-based metal recycler with operations in Maine; Maine-based Mac-Butler LLC; and Maybid Acquisition LLC.

REOPENING OF MILL UNLIKELY

After the auction, Judge Louis Kornreich approved the sale to Hackman Capital during an afternoon hearing at federal bankruptcy court in Bangor. Creswell said the sale is expected to close Thursday or Friday.

Hackman Capital has owned several industrial properties inMaine, including former Hostess Brands warehouses in Portland and Augusta.

Creswell deferred questions about the mill’s fate to Hackman, but said it’s possible the investment firm could market and sell the mill to a paper-making operator.

“The estate doesn’t have that kind of luxury,” Creswell said, referring to the time needed to find a paper company to operate the mill. “Hackman does, but what they do with it … I don’t know.”

Chris Cook, deputy editor of Pulp and Paper Week, doubts Hackman Capital has any intention of running the mill. Although it’s not unheard of for investment firms to operate paper mills – Apollo Global Management owns Verso Paper, for example – Cook has never in his 10 years covering the paper industry heard of Hackman Capital having any industry involvement. He also doubts the firm’s ability to find an operator for the mill.

“Quite honestly, I’ll be surprised if it ever runs again,” Cook said of the mill. “It closed because they couldn’t make money making newsprint. So unless they can find something else to make at a profit, I see no reason for it to reopen. And to convert that machine to make something else would be a costly business.”

Even Rosaire Pelletier, senior forest products adviser at the Maine Department of Economic and Community Development and one of the Maine paper industry’s biggest cheerleaders, had a hard time putting a positive spin on the auction Tuesday.

“We’re disappointed because we would have liked an operator to buy the assets,” he said. “And we do not have one, so that makes it very tough.”

He said a paper mill operator was interested in the East Millinocket plant, but decided over the weekend to not take part in the auction.

Pelletier has had no interaction with Hackman Capital officials, but expects the state to reach out to the company once the sale is completed this week.

“If these people want to work with us, we’re happy to work with them,” he said.

BIDDING SURPRISINGLY ROBUST

Tuesday’s auction is the climax of bankruptcy proceedings that began Sept. 22 when GNP Maine Holdings LLC, which owns Great Northern’s paper machines and equipment, filed for Chapter 7 bankruptcy. Its sister entity, GNP East Inc., which owns the land and mill buildings, filed for bankruptcy in October. The cases were subsequently combined.

GNP Maine Holdings and GNP East are subsidiaries of Cate Street Capital, which purchased the East Millinocket mill in September 2011 for $1 from Brookfield Asset Management. Brookfield had shut the mill down earlier that year and was desperate to get it off its books.

The proceeds from the mill’s sale to Hackman Capital will go to the paper company’s creditors, who are collectively owed more than $60 million.

Creditors for Great Northern Paper are split into two categories: secured and unsecured creditors. Secured creditors, which include the town of East Millinocket and two Louisiana-based financing agencies, are owed more than $42 million and will be paid first out of proceeds.

The unsecured creditors, which are mostly Katahdin-area businesses, are owed $22.6 million. Perrino reached a compromise in November with various stakeholders to secure what’s known as a “carve out” to protect and reserve funds for the unsecured creditors.

The carve out was to return 30 percent of the proceeds from the sale of the mill to unsecured creditors. However, because the compromise contained a cap, which Creswell admitted he never expected to be met, the unsecured creditors will not receive the full 30 percent. Instead, they’ll split $1.34 million among them.

“I think everybody is surprised at the number,” Creswell said. “I don’t think people expected the bidding to go this high.”

WORTH $100 MILLION A DECADE AGO

The $5.4 million is a far cry from what paper mills fetched even 10 years ago, a reflection of the decline in the domestic paper-making industry, according to Cook at Pulp and Paper Week.

A decade ago, the East Millinocket mill would have easily sold for more than $100 million, Cook said, using an outdated rule of thumb that a mill’s value was equal to about $1,000 per ton of output. Operating most recently with one paper machine, the East Millinocket mill manufactured more than 100,000 tons of paper a year. In 1980, when the mill operated with two paper machines, it could produce more than 300,000 tons of paper a year.

“It’s a low number for sure, but it’s what the market will pay,” Cook said. “There’s not much demand for a paper mill and the price reflects that. The mill is fairly old. I think the machines are nearly 60 years old. I think they haven’t been rebuilt for the best part of 30 years and this means they cost a lot more to run than a more modern machine. So even if you buy the mill for next to nothing you still have to make a profit running it. And that’s very hard to do in Maine.”