People gather July 21, 2023, outside Timber HP in Madison for a ceremony marking the return of manufacturing and jobs to the plant. The wood fiber insulation manufacturer filed for a voluntary, prenegotiated Chapter 11 plan of reorganization in the U.S. Bankruptcy Court of the District of Delaware, TimberHP said in a news release. Michael Seamans/Morning Sentinel

MADISON — TimberHP, the wood fiber insulation manufacturer that brought Madison’s shuttered paper mill back to life in 2023, filed for bankruptcy protection Tuesday.

The company has filed a voluntary, prenegotiated Chapter 11 plan of reorganization in the U.S. Bankruptcy Court of the District of Delaware, TimberHP said in a news release.

The plan is intended to “strengthen the company’s balance sheet and position it for long term success,” the company said.

As part of the plan, the company said bondholders will be investing $29 million to support the transition through the bankruptcy process and to provide capital for business growth, including the construction of its third manufacturing line for the product TimberBoard.

Business, meanwhile, is expected to continue as usual, the company said, including the production and sales of two existing products, TimberBatt and TimberFill,

“TimberHP is grateful to its sales partners, vendors, employee partners, and bondholders for standing by the company through this challenging, but necessary process,” CEO and co-founder Matthew O’Malia said in a written statement. “TimberHP has an incredible product line, and we are pleased to have the support and capital required to execute our business plan and address the growing demand for sustainable insulation materials in the U.S. construction industry.”

TimberHP, a division of GO Lab Inc., uses renewable resources to produce wood fiber insulation products, according to the company’s website. The products, popular in Europe, are the first of their kind in North America.

O’Malia, an architect, and Joshua Henry, a chemist, founded the company in 2017. Manufacturing operations in Madison began in 2023 at the former Madison Paper Industries mill on Main Street, which closed in 2016.

At the time, the project was heralded by local officials and politicians, including Gov. Janet Mills and U.S. Rep. Jared Golden, both Democrats, and U.S. Sen. Susan Collins, a Republican.

Initial funding for the startup included approximately $40 million in equity used to buy used manufacturing equipment and purchase the 600,000-sqaure-foot former mill building, according to bankruptcy court filings.

The filings indicate that the revitalization of the mill also led the company to take on a large amount of debt.

Financing included $85 million in bond-backed funding from the Finance Authority of Maine, a quasi-independent state agency, along with other loans totaling millions from several private entities and other quasi-public sources.

“The Debtors’ financial distress arose from unbudgeted cost increases and delays with the construction of the Madison Facility, which remains incomplete,” O’Malia wrote in a court filing. “Inflation and supply-chain issues caused by the pandemic resulted in substantial cost-overruns, particularly with respect to the price of steel and electrical components. In addition, there were unexpected engineering problems associated with retrofitting the paper mill that resulted in substantial change orders.”

Cost overruns during construction exceeded $30 million and prevented the completion of equipment for the third product line, TimberBoard, the filing says.

Two contractors, Cianbro Corp. and Gilman Electrical Supply, also recorded more than $15 million in mechanic’s liens, according to the filing.

In 2023 and 2024, the company sought to raise an additional $60 million but raised only $31 million, the filing says. The company received interest from a potential purchaser in September 2024, but that deal fell through by February of this year.

That led TimberHP to develop its restructuring plan.

The company has expressed optimism about the plan, both in its news release and in court filings.

“Dr. Henry and I believe there is a substantial market opportunity in the United States for the Debtors’ products,” O’Malia wrote in the filing, “particularly given wood fiber insulation’s proven track-record in Europe, its compatibility with wood frame construction, which is above 95% of the U.S. residential market, the growing interest among consumers for sustainable building materials, and the ability to produce wood fiber insulation at lower cost due to the lower energy costs and greater availability of raw materials in the U.S. as compared to Europe.”

TimberBoard, the third product that has yet to launch, is described in court filings as the most market-differentiated product, expected to be the company’s largest revenue source and have the highest profit margin of the three insulation products.

When the mill retrofitting is completed, it is expected to generate about $170 million annually, which is about 2% of the national market for residential and commercial insulation, court filings say.

The bankruptcy filing also notes the reorganization is aimed, in part, at preserving jobs in and around Madison.

The company had 54 full-time employees as of Tuesday, and TimberHP expects to create 66 more jobs when it is fully operational.

In the news release, the company said it plans to expand its sales and support team to ramp up sales in the Northeast and mid-Atlantic regions.

“The ongoing professionalism of our existing TimberHP employees, and their commitment to bringing our products to market through this period of change, has been inspiring to witness,” O’Malia, the CEO, said in a written statement. “We’re excited to also have the capital moving forward to add key positions to our talented group.”