Kruger Products to Invest $575 Million

KP Tissue Inc. (KPT) and Kruger Products L.P. (KPLP) have 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 announcement of this major project, supported by the Government of Québec, was made in the presence of Dominique Anglade, Quebec Deputy Premier , Minister of Economy, Science and Innovation and Minister of Québec's Digital Strategy; Luc Fortin, Québec Minister of Families and Minister Responsible for the Estrie Region; Guy Hardy, MNA for Saint-François; as well as Dino Bianco, CEO, Kruger Products L.P., and Joseph Kruger II, chairman and CEO, Kruger Inc.

The new plant, which will be adjacent to an existing facility of the Kruger Group, will produce at maturity approximately 70,000 metric tons/yr 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, 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 Bianco.

Through-air-dry (TAD) technology is the world's most advanced ultra premium tissue products manufacturing technology. It uses less fiber to obtain a plusher, stronger, exceptionally soft and more absorbent product.

While Kruger Products has been operating a TAD machine at its Memphis, TN, 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 percent equity and 60 percent 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 percent 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 percent equity interest in TAD2Canco if the entirety of the debenture were to be converted.

KPT was created to acquire, and its business is limited to holding a limited partnership interest in KPLP. KPT currently holds a 15.9 percent interest in KPLP.

Kruger Products L.P. is Canada's leading manufacturer of quality tissue products for household, industrial and commercial use. KPLP serves the Canadian consumer market with such well-known brands as Cashmere, Purex, SpongeTowels and Scotties'. In the U.S., KPLP manufactures the White Cloud® brand, as well as many private label products. The Away-From-Home division manufactures and distributes high-quality, cost-effective product solutions to a wide range of commercial and public entities. KPLP has approximately 2,500 employees and operates eight FSC (FSC® C104904) certified plants in North America.

Kruger Inc., the parent company of Kruger Products L.P., is a third-generation family company headquartered in Montréal since 1904, the year it was established. It is a major producer of tissue products; 100 percent recycled containerboard products; corrugated packaging; publication papers; specialty papers; renewable energy; cellulosic biomaterials; and wines and spirits. The company is also a leader in paper and paperboard recycling in North America. Kruger Inc. has facilities in Québec, Ontario, British Columbia, and Newfoundland and Labrador, as well as in Tennessee, Maine, New York, Virginia and Rhode Island in the US.