Clearwater Paper Weighs Recourse After Augusta Mill Failures

Clearwater Paper has collected $73 million in representation and warranty insurance payouts tied to its 2024 purchase of a Graphic Packaging mill — and CEO Arsen Kitch says that may not be the end of it. The company suspects it was misled during the acquisition of the Augusta, Georgia, bleached paperboard mill, and it is examining its legal options.

"After we acquired Augusta, it became clear to us that some of those representations and warranties were either incomplete or inaccurate," Kitch said on Monday's third-quarter earnings call. "We'll review all of our facts and all of our options related to the acquisition."

What broke at Augusta?

In late September and early October, the mill suffered "several electrical and mechanical failures in the pulp, power and recovery areas of the operation," Kitch said. "Due to the interconnected nature of a kraft pulp mill and the continuous flow of our manufacturing process, these failures have significant downstream impacts."

The mill was already struggling. For several quarters before the failures, Augusta had been running 10% to 15% below desired production levels, Kitch said.

The Q3 disruptions cut production and shipment volumes further. Insurance money softened the blow. Clearwater received its fourth and final RWI payment of $17.5 million during the quarter, bringing the total to $73 million since Q4 2025 against a policy limit of $105 million.

During an M&A process, Kitch explained, the seller makes representations and warranties on assets, customer agreements and other matters. Clearwater may have been misled on those points when it bought the mill from Graphic Packaging International in 2024.

What does this change for the repair schedule?

The failures forced Clearwater to scrap planned maintenance at Augusta this month. A maintenance outage is now scheduled for January, at an estimated cost of $12 million to $15 million. More downtime is likely in Q2 or Q3 2027, at an estimated cost of $7 million to $10 million.

"We will need to invest additional capital dollars in the mill to address asset conditions that were not easily identifiable through a typical diligence process and were not accurately represented to us during the sale," Kitch said. He expects "some additional investments in Augusta next year to take care of some of the liabilities that we've uncovered."

The financial toll showed up in the Q3 numbers. Clearwater reported net sales of $385 million, a 1% decline in shipments and a net loss of $2 million.

SBS demand is turning

The Augusta trouble sits against a more hopeful demand picture in solid bleached sulfate. In April, Clearwater announced a restructuring of its SBS mill in Cypress Bend, Arkansas, halving production and cutting salaried and hourly headcount by about 20%. The company cited SBS demand pressure that has run for more than a year and has been echoed by other producers. The plan includes creating swing capacity at that mill to also make coated unbleached kraft.

Kitch pointed to "signs of recovery in SBS" on the call. Year-to-date shipments through the second quarter were up 6%, compared with declines of 2% to 3% in CUK and coated recycled paperboard.

Pricing is moving too. Fastmarkets RISI recognized a $60-per-ton price increase for SBS, Kitch said, and more could come next year. "If all these increases materialize across all our tons, we would expect our adjusted EBITDA run rate to improve by nearly $200 million," he said.

What's next

Clearwater expects paperboard production and shipments to decline in the fourth quarter, driven by typical seasonality and the Augusta disruptions. Kitch framed the recovery as a matter of execution: "We continue to work through the impact of these failures but we will recover and return the mill back to its normal production capability." Between the January outage, the 2027 downtime and any recourse Clearwater pursues over the acquisition, the Augusta saga will carry well into next year.