End of the Innocence

Who knows how long this will last
Now we've come so far, so fast
But, somewhere back there in the dust
That same small town in each of us
--Don Henley

Pep's must read missive today on social mood included mention of a Bloomberg profile of NewPage's shutdown of the Kimberly, Wisconsin mill. Judging by Xmas card notes from my Wisconsin friends at other NewPage facilities, there's plenty of concern that other mills closer to the original central Wisconsin operations of the old Consolidated Papers, Inc. are next in line.

Editor's note: The Kimberly facility was aquired by CPI not long before CPI was gobbled by Stora Enso (STEAV) in 2001, which later sold all CPI assets to NewPage in 2007. Follow?

When I left in 1995, never in my wildest dreams did I suspect that this bedrock employer would someday become a microcosm of our building socioeconomic strife and unrest.

It's easy to chalk up what's happening now to global competition, and to cushy union contracts that reduced adaptive capacity of local workers. There's some of that to be sure.

But I can't help but wonder about the role of easy money and credit in dismantling a first string industrial competitor. Let's follow the bouncing check:

Late 1980s/early 1990s. CPI borrows to fund internal expansion for the first time in company history.

1990s. More CPI borrowing continues to fund several external acquisitions. Globally, capacity grows as competitors enter the industry on the back of cheap borrowed capital.

2000. Awash in supply, the paper industry turns down while CPI saddles record debt.

2001. Finland based Stora Enso borrows huge to buy CPI. Deal is worth about $5 billion in equity and assumed debt.

2002-2007. More borrowing by Stora to upgrade some paper machine lines. Older machines shut down. Multiple RIFs (reduction in force) shreds local workforce.

End 2007. Drowning in debt and soft global markets, Stora sells coated paper assets (i.e., 'CPI' assets) to NewPage for about $2.5 billion (Stora eats a 50% loss on their trade). NewPage funds the buyout with, yep, more debt.

2008. NewPage and parent Cerberus struggling under soft market conditions and debt load. Kimberly mill shuttered.

Where would this situation be today if central banks around the world were not creating $trillions in cheap credit over the past two decades?

Much different, me thinks.

no positions