Dwindling cash flow from pool lumber markets during 2023 hit the point of insolvency by the end of the year, forcing forestry company Teal Jones Group to seek protection from creditors this week.
The Surrey-headquartered Teal Jones Group, the multi-generational B.C. forestry firm with three mills and some 400 employees in the Lower Mainland, filed for court protection from its creditors Wednesday as dwindling revenues left it without the cash to pay its bills.
On Wednesday, B.C. Supreme Court Justice Gordon Weatherill granted Teal Jones a stay of insolvency proceedings under the Companies’ Creditors Arrangement Act, giving the company a chance to raise the cash it needs, including through the sale of assets such as land holdings on Haida Gwaii.
Historically, Teal Jones had been able to run profitable operations and reinvest those profits in the business but faced a growing cash crunch through 2023, company vice-president Gerrie Kotze said in an affidavit to Teal Jones’s court petition.
The company was founded in B.C. but has extensive operations in the U.S. as well, both in Washington state and in the southern states, including a 57 per cent partnership in a new, US$110 million mill under construction in Plain Dealing, La.
However, lumber markets collapsed for the company during 2023 and the lower lumber prices coupled with the inflation of higher labour costs and escalating interest rates left it without enough revenue to remain in the black.
“The petitioners are insolvent on a cash flow basis and are unable to meet their obligations as they generally become due,” Kotze said.
Its position was made worse because it had to scale back operations starting in March, and Kotze said the company needed “immediate financing to return to continued operations and meet payroll,” which he estimated at between $500,000 and $1 million per week.
Teal Jones was also the logging company at the centre of old growth logging protests at Fairy Creek on Vancouver Island, which the company said cost it $40 million.
The company has estimated, with the help of court-appointed monitor PwC, that it will need $60 million in financing, including $3 million within the first 10 days of the proceedings, to get its operations back on track.
There was no answer at Teal Jones’s Surrey offices Friday, but in the company’s court filing, Kotze said court protection will help preserve the value of its business while it takes steps to raise cash and reorganize its operations with a view to a potential sale of the company.
“The petitioners intend to seek the approval of a sales and investment solicitation process,” Kotze said. “It is anticipated that the (process) will commence in May 2024 and would conclude on or about December 2024.”
The downturn is bad news for a storied firm in B.C.’s forestry sector with a history that dates to 1946 when company founder Jack Jones opened a one-person cedar shingle mill on Lu Lu Island in New Westminster.
The company, now run by sons Dick and Tom Jones, has timber licences, logging operations and mills that produce wood products ranging from cedar shakes and dimensional lumber to specialty cuts for remanufacturing including niche products such as fine-grain Sitka spruce used in guitar tops.
Teal Jones, in recent years, made a bet on diversifying into the southern U.S. along with other B.C. firms and in 2018, increased its holdings by buying two mills in Virginia at a time it viewed B.C. as a less secure place to invest.
Its U.S. holdings now consist of operations in Sumas, Wash., Virginia, Oklahoma, Mississippi and its 57 per cent stake in the new mill under construction in Louisiana, which Teal Jones has put up for sale as part of its court proceedings.
Industry consultant Russ Jones called it a sound strategy, but acted on with “bad timing,” particularly with respect to building a new mill.
Lumber prices in the U.S. South, where operations had been reliably profitable, collapsed at the same time Canadian mills were also struggling to break even.
“Basically it’s a big lost position for most mills now in the U.S.,” Taylor said. “So it’s tough (because) that’s where all their assets are. The more they run, the more they lose.”
In court filings, Kotze said Teal Jones’s cash crunch came to a head last November when the value of its lumber inventory fell below a ratio required in a loan agreement with key U.S. lender Wells Fargo and the bank, which is owed $160 million, issued a default notice.
Efforts to raise money since have included putting real estate holdings near Sandspit, Haida Gwaii, up for sale, pursuing the sale of some $15 million in softwood-lumber-duty deposits and a sale lease back of the property of its home operations on Trigg Road in North Surrey.
The next court hearing in B.C. Supreme Court, where Teal Jones is expected to seek an extension of the protection order, is scheduled for May 3. On Friday, the company was also scheduled to seek recognition of proceedings in the U.S. Bankruptcy Court for the District of Delaware.
Source: Teal Jones Group mills reorganizing under court protection | Vancouver Sun