ACTION REQUESTED:
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Communication from the City Manager with a Request to APPROVE a Loan from the City’s REVOLVING LOAN FUND to IVEX SPECIALTY PAPER LLC, PAPER INVESTMENT LLC AND BRENT EARNSHAW, in the Amount of $250,000.00, and to Authorize the City Manager to Execute the Necessary Documents.
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BACKGROUND: The IVEX Paper Mill is in the process of being purchased by IVEX Specialty Paper LLC, owned by Paper Investment LLC; and Brent Earnshaw is the majority owner of Paper Investment LLC. Altogether, both LLC’s and Brent Earnshaw (collectively IVEX) will purchase the IVEX Paper mill for $1,025,000 as a going concern, and invest $2.0 million in machinery and equipment upgrades. A view of the property is attached (see Exhibit).The property at 1 Sloan Street consists of 125,000 sf of buildings on 6 acres of land. Currently 46 people are employed-8 managerial and 38 in warehousing/manufacturing.
Company Background
The paper mill at 1 Sloan Street was built in 1912. Since then, the paper mill has gone through several owners and on June 2015 New INDY - JV Corporation purchased the Peoria paper mill along with three larger paper mills. The specialty paper mill in Peoria was unique in that it was small compared to the other three mills, which were high volume paper mill operations.
The paper mill's main operation in Peoria takes clean recycled cardboard as raw material and coverts it into large rolls of a specialty paper products with unique qualities--thickness, strength, texture, and weatherization capacities. The paper rolls are sold to various business for conversion into: a) bag tape used to seal charcoal bags, b) crepe filters for food processors, c) carpet seam tape, and d) misc. kraft paper.
Financing Structure and Terms
IVEX’s $3.025 million investment in capital investment include $1,025,000 to purchase all business assets, and $2,0 million in strategic capital improvements. In addition, a $1.25 million line-of-credit will be made available for working capital.
The loan was reviewed by the Loan Review Panel and recommended for approval according to the Memo of January 27. The general terms and conditions of the loans are:
• Loan Terms - A loan amount of $250,000 at an interest rate of 4% for a term of 10 years, amortized over 20 years. The loan will be disbursed at the start of equipment purchase. A closing fee of 1% or $2,500 may be added to the principal amount or paid upfront at closing.
• Collateral Requirements - The loan will be secured with: a) both LLC’s and Brent Earnshaw as borrowers, b) second mortgage on 1 Sloan Street, and c) blanket UCC subordinate to bank.
• Conditions - It was noted and understood that the City loan is conditioned on raising the other sources of funding shown in the table below.
The following is a breakdown of Sources and Uses of funds for the project:
RLF Program Background
The City’s Revolving Loan (RLF) Fund Program was initially capitalized in 1988 with $769,232 by an EDA grant of $500,000 and matching funds from the City of $269,232. As of June 30, 2019 the capital base has grown to $1.28 million through net income from interest ($947,803) minus losses/expenses ($436,313). In total the program has loaned over $4.3 million to 46 different projects in the industrial, commercial, and service industries and has assisted with the creation/attraction of 2,067 jobs. City loans of $4.3 million were leveraged with $55.4 million of other funds and has resulted in an overall investment of $59.7 million. On average, RLF projects represent an investment of $1.27 million, 43.9 jobs, and a City loan of $91,489. For every $1.00 of RLF proceeds loaned by the City an additional $12.85 was leveraged.
FINANCIAL IMPACT: If approved, the City would disburse $250,000 from the RLF Fund which had a balance available for lending of $257,925 as of June 30, 2019.
NEIGHBORHOOD CONCERNS: Not applicable
IMPACT IF APPROVED: The City would support the retention of 46 jobs and the creation of 5 jobs.
IMPACT IF DENIED: A financial gap of $250,000 would continue and the project would either be scaled back, the project would be delayed; and/or additional equity/debt would need to be raised.
ALTERNATIVES: None
EEO CERTIFICATION NUMBER: Not applicable.
DEPARTMENT: City Manager's Office