Maine to reassess US$25M bond for Cate Street Capital's Thermogen Industries after company changes plans for biomass fuel project in Millinocket, Maine; new plan doubles project's cost to US$140M, would triple annual output, says company director
April 16, 2014
(Portland Press Herald)
– Maine agency to reassess $25 million bond for Thermogen startup ; Because the company plans a significant change in its biomass fuel project, a new vote will be taken.
A controversial $25 million bond the state planned to sell on behalf of a startup company that wants to launch a biomass fuel project in Millinocket is up in the air after the company announced a significant change in the project's scope. A meeting on Thursday will determine if the state will continue its support of the project.
In October 2013, the Finance Authority of Maine's board approved a state-backed $25 million bond for Thermogen Industries, a company that intended to install proprietary renewable energy technology at the site of the former paper mill in Millinocket.
Thermogen expected to use Rotawave technology to manufacture special coal-like wood pellets. The company's original plan required a $70 million investment and was expected to create 36 jobs. Maine taxpayers would have been responsible for paying back the bond if the project failed.
Although FAME staff recommended a bond of a lesser amount, the full board approved the $25 million bond last fall in an 8-5 vote.
But everything changed after Thermogen announced it was shelving its original plan in favor of pursuing a more expensive, but better established, technology. The new technology, developed by Houston, Texas-based Zilkha Biomass Energy, would create a black wood pellet targeted primarily for power plants in Europe looking to replace coal with an alternate fuel to lower emissions.
"Because of the substantial change, we believe it requires another look by the board," said Bill Norbert, FAME's spokesman.
Alexandra Ritchie, director of community and government relations for Cate Street Capital, which manages the fund that owns Thermogen, said the new plan doubles the project's cost to $140 million, but increases the number of direct jobs created to 55 and triples the annual output of the facility.
"It's important to understand the change in technology isn't a negative thing," Ritchie said. "The project we put forth to FAME in the fall, and was approved using Rotawave, was a good project. It was a project we stood behind and still do."
The benefits of changing the technology, even though it means going back in front of FAME for another vote, outweigh the negatives, she said. And while the project cost is doubling, Thermogen is not looking for more money from FAME.
"Cate Street is facilitating the additional investment into the project," she said.
Cate Street Capital is a New Hampshire-based private equity firm that manages the investment fund that owns Thermogen. It also manages the investment fund that owns Great Northern Paper, which purchased defunct paper mills in Millinocket and East Millinocket in 2011. GNP reopened the East Millinocket mill, then shuttered it in January and laid off more than 200 employees.
The FAME board on Thursday will hold a completely new vote on the $25 million bond, according to Vice Chairman Patrick Murphy, who will chair the meeting. Chairman Raymond Nowak is expected to recuse himself because he works for a company that could potentially buy some of the bonds being discussed. Murphy is president of Portland- based marketing and consulting firm Pan Atlantic SMS Group.
Murphy was one of the five board members to vote against issuing the original bond in October.
"How people voted last time doesn't predicate how they will vote this time," Murphy said on Tuesday. "A lot has happened in the meantime. I hope there is a good, open, honest, non-confrontational discussion and that people make up their own minds on the merits and demerits of the applicant's case on this occasion."
Although Thermogen and GNP are separate companies, GNP's recent financial troubles are likely to be an issue addressed by FAME board members Thursday. Several creditors are seeking payment of unpaid bills. Additionally, the Internal Revenue Service on March 31 filed a lien with the Penobscot County Registry of Deeds on GNP West Inc. for $1.4 million in unpaid federal corporate income tax from 2012. An existing condition on FAME's release of bond funds to Thermogen requires Great Northern to pay $3 million in overdue property taxes to Millinocket and East Millinocket. Norbert said he expects the same conditions will prevail if another bond is approved.
Ritchie acknowledged the issue, and called the IRS tax lien "unfortunate" and said GNP is "diligently working with the IRS to resolve the issue as quickly as possible." She also noted the complexity of a project this size creates a constantly changing timeline.
"It's taken longer than anyone in the organization anticipated, but it's part of project development on this scale," she said.
Another factor that could have a bearing on Thursday's outcome is the composition of the FAME board. Of the five board members who voted against the bond in October, two are no longer on the board. Of the eight that voted for the bond, only one has departed.
Glenn Lamarr, a commercial lender at TD Bank's Fort Kent branch and former FAME board member, voted against the $25 million bond last October. On Tuesday, he said his vote reflected his belief that Cate Street would not be able to pay back the loan. He said he would likely have voted for the $16 million bond that FAME staff originally recommended.
Lamarr said he had doubts about the technology and concerns that as a startup, Thermogen had no track record. "Since then, of course, we've read in the papers about other developments taking place and (GNP) being unable to pay town taxes and the IRS," he said, noting that FAME has a responsibility to represent Maine citizens in these types of decisions.
Lamarr wouldn't speculate on what his former colleagues on the board would do Thursday, but said they will have to weigh Cate Street's promise that this new technology will provide more jobs and make the enterprise more viable, against recent revelations that suggest the company is having a hard time paying its bills.
"It's going to be interesting," he said.
Staff Writer Whit Richardson can be reached at 791-6463 or at: email@example.com
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