Cate Street Capital, a private equity firm that was behind a controversial plan to reopen the former Great Northern Paper mill in East Millinocket with the help of a state tax credit program, has filed for bankruptcy.

The firm bought the mill from its bankrupt former owner, Great Northern Paper, for $1 in 2011 and brought in investors in an attempt to reopen the facility. A Portland Press Herald investigation found that Cate Street inflated the value of its investment and ended up reaping $16 million in refundable state tax credits.

The mill was closed again three years after Cate Street bought it, and the 200 employees who had been brought back to operate it were again laid off.

In its federal bankruptcy filing, Cate Street listed its assets as slightly more than $200,000 in cash and said it owes more than $800,000 in legal bills and potentially $2.8 million to a Massachusetts company for natural gas and equipment provided to the Maine mill. The natural gas company is seeking its money in New Hampshire state court, alleging that Cate Street never paid what it owed.

In the filing, Cate Street lists a Florida address, but it had conducted most of its operations from New Hampshire.

It filed for Chapter 7 bankruptcy, under which the company is dissolved, rather than Chapter 11 bankruptcy, which is used when a company reorganizes and restructures its debt and continues to operate.

In the mill deal, Cate Street had said it would invest $40 million under a program of tax credits designed to induce investments in the state. But most of the money Cate Street borrowed for the mill deal was immediately transferred from one subsidiary to another and then used to repay the borrowed amount, known as a “one-day loan.” Critics said the short-term loan was intended to increase the amount invested in the deal, at least on paper, in order to maximize the amount of tax credits under the program.

The Maine program was modeled on a federal program intended to increase investments in low-income areas. Unlike the federal program, however, the Maine program offered tax credits that can be fully refunded. So out-of-state investors with no Maine tax liabilities were able to receive the tax credits in cash, totaling $16 million over five years, for what turned out to be an investment of slightly more than $8 million, which was used to pay off debt and fees to the lenders.

Related Headlines

Only subscribers are eligible to post comments. Please subscribe or login first for digital access. Here’s why.

Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.