KP Tissue Inc. and Kruger Products L.P. announced its plan for a capital investment of $575 million in the Brompton area of Sherbrooke, Québec, to build a new, state-of-the-art tissue plant featuring Canada’s largest and most modern through-air-dry (TAD) machine. The project will create more than 180 new jobs in the region.
The new plant, which will be adjacent to an existing facility of the Kruger Group, will produce at maturity approximately 70,000 metric tonnes per annum of bathroom tissue and paper towels which will enable Kruger Products to increase its offering of ultra-premium and innovative tissue products under the Cashmere®, SpongeTowels® and Purex® brands.
The project is supported by the Government of Québec through Investissement Québec (“IQ”), which has agreed to invest $105 million by way of a convertible debenture. The remaining financing for the project is currently being finalized.
“This project is on an unprecedented scale for Kruger Products and will give us the additional capacity to continue to grow our business into the future. This new facility combined with our Memphis TAD location will allow us to rebalance our ultra-premium tissue capacity to better serve our customers across North America. The Brompton site will also be part of a critical manufacturing hub in the region, working with our other locations in Crabtree, Gatineau and Sherbrooke to produce great quality tissue products for our company” said Dino Bianco, Chief Executive Officer, Kruger Products.”
While Kruger Products has been operating a TAD machine at its Memphis, Tennessee plant since 2013, its TAD 2 machine will be the first of its kind in Québec.
Construction of the project is expected to begin in early 2019, and the plant is slated to commence production in early 2021. The project will generate major benefits, including over $250 million in direct expenses in Québec and one million person-hours for the construction of the new plant.
The project is expected to be financed with 40% equity and 60% debt in a newly-created, wholly-owned indirect subsidiary of KPLP (“TAD2Canco”). The equity is expected to be funded by the IQ investment of $105 million by way of subscription to a convertible debenture, and Kruger Products expects to obtain financing for the remaining equity. Long-term construction financing for the debt portion is currently being finalized. The IQ convertible debenture will carry a 3% capitalized fixed interest rate for a term of 10 years, and will be required to be redeemed on a monthly basis by KPLP commencing 36 months from the date of issuance. In the event of a failure to make a monthly redemption in accordance with the terms of the debenture, IQ will have a conversion right in respect of the portion of the balance of the debenture that is not paid on terms of conversion that would provide IQ with a 48.6% equity interest in TAD2Canco if the entirety of the debenture were to be converted.
