AUGUSTA, Maine — The state agency scheduled to re-examine this week a $25 million loan guarantee it approved for a $140 million pellet mil l proposed for Millinocket is reviewing whether the developer’s recent IRS problems should alter the agreement, an official said Monday.
The Finance Authority of Maine learned over the weekend that the Internal Revenue Service filed liens totaling $2.49 million against GNP West Inc. and GNP East Inc., two Cate Street Capital subsidiaries formed to help operate an East Millinocket paper mill and a Millinocket industrial park, said Christopher Roney, FAME’s general counsel. The liens were filed April 10 for nonpayment of corporate income taxes in 2012, according to the IRS.
“We learned of this issue over the weekend and are in the process of gathering facts to determine whether or how this would affect the FAME staff analysis,” Roney said in an email on Monday.
He declined to comment further.
Alexandra Ritchie, managing director for government and community relations for Cate Street Capital, described the Cate Street company slated to make the pellets, Thermogen Industries LLC, as a standalone entity and business separate from Great Northern Paper.
“While Great Northern Paper has outstanding debts, they are completely separate from Thermogen. It is acknowledged that the Great Northern Paper property tax payments due are a condition to Thermogen’s use of the FAME loan guarantee — and a condition that will be satisfied,” Ritchie said in a statement released Monday. “While great synergies will exist between GNP and Thermogen’s operations, with potential great enhancements to both, Thermogen’s success is not at all dependent upon GNP.”
Thermogen’s facility would create 55 direct jobs and more than 250 indirect jobs in the next 12 months, Ritchie added. She called the project “incredibly exciting for the state of Maine.”
“Thermogen is looking forward to being in Maine for a long time,” she said.
FAME is due to consider the revised proposal at 10:30 a.m. Thursday, Roney said.
FAME’s board of directors voted 8-5 in October to approve the $25 million loan guarantee. The guarantee had not been issued when board members opted to revisit the approval on Feb. 20, when Thermogen officials told FAME that they would be changing the project’s technology from a microwave pellet-roasting process devised in Scotland to a Masonite-based process offered by a company in Houston.
Roney said March 20 that the company would have to pay about $3 million in delinquent property taxes due to East Millinocket and Millinocket before it could secure the loan guarantee.
The IRS filed two liens with the Penobscot County Registry of Deeds on April 10. One, for $1.43 million, was filed against GNP West Inc., which handles the industrial park. The other, for $1.05 million, was filed against GNP East Inc., which is listed as a co-licensee on state environmental permits given to the paper mill in East Millinocket.
The FAME resolution detailing the loan guarantee makes no specific mention of overdue taxes. It does require at several points that the borrowing party, Thermogen, “is creditworthy.”
Section 8 of the resolution requires a creditworthy rating and stipulates that “there is a strong likelihood that the revenue obligation securities will be repaid through the revenues of the project and any other sources of revenues and collateral pledged to the repayment of those securities.”
The requirement stipulates “a reasonable prospect that the loan will be repaid” and secured “by appropriate levels of collateral”; and that the borrower is “creditworthy and of good character,” the resolution states.
It also states that, “This resolution is conditioned on there being no material adverse event or change, in the discretion of [FAME’s] chief executive officer, affecting the borrower or any guarantor prior to the issuance of the bonds” securing the loan guarantee.
Gov. Paul LePage, who supports Cate Street’s efforts, and his administration have had no comment on Cate Street’s tax problems. Adrienne Bennett, his press secretary, did not respond to a request for comment on Monday.
Records show Cate Street’s GNP companies are at least $6.81 million in debt to the federal government, East Millinocket and Millinocket, and several vendors who have sued or filed liens since February 2013.
Before the IRS filings, vendors supplying the companies had gone to civil court or filed liens for unpaid bills totaling $1.32 million and been paid $117,587, Penobscot County records show.
After the IRS, the largest single creditor is the town of Millinocket, which is owed $2.3 million in property taxes, not counting interest. GNP owes East Millinocket $657,900 in property taxes, again without interest. Neither town has filed a lien.
Great Northern Paper, a Cate Street’s subsidiary, ceased mill production in late January and laid off 212 of the mill’s 256 workers about two weeks later, citing high energy and production costs and the need for greater efficiencies.