Lincoln Paper and Tissue in Penobscot County has filed for bankruptcy.

The company, which employs 170 people in the production of specialty tissue for products like party napkins and medical tissues, filed a voluntary petition for Chapter 11 bankruptcy Monday. The mill will continue normal operations thanks to a financing deal with its senior lender, Siena Lending of Stamford, Connecticut, until an auction can be organized and the mill can be sold, according to Keith Van Scotter, the company’s CEO.

The company owes more than $10 million to more than 200 creditors, according to court papers in U.S. Bankruptcy Court cited by The Associated Press.

Lincoln Paper and Tissue is Maine’s only tissue mill. Its bankruptcy is the latest blow to Maine’s paper industry, which has experienced hundreds of layoffs and the loss of two mills – in East Millinocket and Bucksport – in the past year.

Van Scotter said Monday that “a culmination of issues” forced the company to file for bankruptcy. The problems started in November 2013, when a boiler explosion at the mill disrupted its ability to produce its own wood pulp and manufacture nontissue paper. As a result, the company laid off 200 people, about half of its workforce at the time, and reconfigured its operation to focus solely on tissue.

It also had to start buying its pulp on the open market, which “certainly provided a cost disadvantage,” Van Scotter said.

“We expended capital to reconfigure the place to do that efficiently,” he said. “Unfortunately, given the issues associated with markets, energy costs, employee health care costs – a whole litany of issues, as well as some potential litigation we’re facing from the federal government – we found ourselves in the position where we couldn’t continue the way we were going.”

The potential litigation is a reference to a 3-year-old case in which the Federal Energy Regulatory Commission accused Lincoln Paper and Tissue of fraudulently manipulating New England’s energy market.

“We strongly dispute the allegations,” Van Scotter said Monday. “We filed motions for dismissal a year ago, but it’s one of those uncertainties hanging out there that make it difficult to raise financing or grow the business or bring in new investors.”

Van Scotter said he’d been quietly shopping the company around for about a year.

The latest blow came just a month ago, when the mill shut down one of its three paper machines and laid off 25 employees.

An auction to sell the mill’s assets will be held in 45 days and the sale process will take about 60 days, Van Scotter said.

Lincoln Paper has filed a Worker Adjustment and Retraining Notice, as required by law whenever an employer is anticipating possible plant closings and mass layoffs. Julie Rabinowitz, spokeswoman for the Maine Department of Labor, confirmed that the department had received Lincoln’s notice.

Once the company is in bankruptcy protection, Van Scotter can’t determine whether the ultimate buyer is another paper producer or a company interested in the industrial machinery and scrap metal potential. But he said he’d make every effort to ensure that the mill can operate.

“I’m pretty confident there will be a going concern coming out the other side,” he said. “I just think the business has a reason to exist. We are the leading supplier in the U.S. of specialty tissue rolls in a number of applications, including colored tissue. There’s a customer base for this mill.”

While the demand for several types of paper is falling, including the newsprint that was produced by Great Northern’s now-defunct mill in East Millinocket and the coated glossy paper produced at Verso’s now-defunct mill in Bucksport, the tissue market is growing, albeit slowly.

Asked whether the addition of two tissue machines in the mill in Baileyville had anything to do with Lincoln Paper’s decision to file for bankruptcy, Van Scotter wouldn’t say.

“It’s additional capacity in a market that’s pretty well supplied, but I can’t say anything bad about them. They’re trying to grow their business,” he said.