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Why the Port was forced to take over NewWood

Port of Grays Harbor photo The NewWood facility sits on 19.67 acres at the Satsop Business Park near Elma.
Port of Grays Harbor photo The NewWood facility sits on 19.67 acres at the Satsop Business Park near Elma.

ABERDEEN — The Port of Grays Harbor will take over the operations of NewWood composites company at the Satsop Business Park, purchasing the equipment and two patents for $1.3 million — less than half of the appraised value — and turning it into a turn key operation to lease to a third party to run the facility.

A Grays Harbor Superior Court judge must still approve the sale.

The move comes after a court-appointed receiver for the company, in the middle of a foreclosure process, couldn’t find a buyer willing to take on the risk of operating the facility. If approved by the judge, the Port of Grays Harbor will be the fourth owner of NewWood in less than a decade — none of which has been able to successfully find a niche market and be successful. The sale puts the Port as the middle man, holding the risk if the company fails.

But Port Executive Director Gary Nelson has high hopes that with a new partner and public money from the Port that it’ll be different this time.

“The focus is on a good product, not a promise of jobs because that hasn’t worked well in the past,” Nelson said.

Port Commissioner Jack Thompson echoed that enthusiasm after the Port’s unaninmous decision of three resolutions paving way for the sale during a special meeting Tuesday morning.

“This has been an ongoing issue for quite a while and we have done a lot of due dilligence,” Thompson said. “This is a good investment. If they go broke we can still sell it and get our money back. We’re hoping that the business transaction we’re doing will provide more jobs and activity at Satsop and add to the tax base for the whole county. If it doesn’t work, then we have the option to go back and scrap that equipment out because the scrap price will be more than the $1.3 million we’re paying for it. It isn’t like we’re just jumping off the bridge here.”

“Sometimes there has to be a middleman, especially in business and we’re taking the lead because this is very important to the people of Grays Harbor,” Port Commissioner Chuck Caldwell said.

Operating in a 275,000-square-foot facility, the company turned wood waste and recycled plastic into a composite wood used for fencing, home siding, small buildings, bins, crates, lawn and garden edging, among many other things. As many as 150 people worked there in 2010.

Thompson noted that a new potential operator, an affiliate of Pensylvania-based Triventas, is looking at the business more as a start-up with 20 to 25 employees.

“It’s a much more realistic vision,” Thompson said.

While the Port owns the building and land where NewWood is at, they didn’t own the equipment. The equipment was owned by the old NewWood company, which is part of the court-appointed receiver process. The proposal unaninmously approved by the Port Commissioners during is for the Port of Grays Harbor to purchase the equipment in NewWood’s building and then to lease it all back to a private company, which would be responsible for marketing and distributing the plastic and wood composite products.

The proposal states that while the Port would purchase the equipment, the private company would have 90 days to do its due dilligence and if it doesn’t like what it sees, the company could walk away without a tenant to run the turn key operation. That would leave the Port with the option of either looking for someone else to run the what would be a Port-owned facility using the Port-owned patents or scrap it all.

The Port commissioners authorized Nelson to sign an Asset Purchase Agreement with the court-appointed receiver for the purchase of the NewWood Corporation’s Process Equipment and intellectual property currently located at the Satsop Business Park. A second resolution authorized Nelson to sign the necessary documents for a loan from Craft 3, the original holder of NewWood’s note, in order for the Port to purchase NewWood Corporation’s Process Equipment and intellectual property. The loan would be for 66 months with no payments for the first six months. The interest rate will start at 3 percent and then jump to about 6 percent six months after the lease agreement is signed. Closing fees are not expected to exceed $5,000.

The third resolution authorized Nelson to sign a letter of intent with an outside company to utilize the equipment and patents. The letter includes a proposed lease for 10 years with two 10-year options to renew. It includes requirements for insurance and a performance bond. There would be no rent for six months and then the rent would be for $48,000 a month and beginning Dec. 31, 2017, the rent would be for $73,500 a month. There would also be a potential process equipment agreement, which would give the company a provision to either purchase the equipment or lease it from the port. If they purchase the equipment, the purchase price would be $1.7 million — $400,000 more than the Port’s investment. Leasing would be for $32,800 over the 66-months that the Port is paying off its loan. As a side note, the Port would be paying $25,700 on the loan each month, Port Commissioner Stan Pinnick pointed out, allowing the extra funds to go into its general fund. At the end of the 66 months, the company would acquire the equipment. The company is in charge of maintenance on the equipment.

“The bottomline is they will purchase the equipment at the end,” Thompson said.

Nelson said that the equipment is valued at $2 million to $3.5 million should a forced liquidation happen. The Grays Harbor Assessor’s Office valued the equipment at more than $3.5 million when they assessed the equipment in 2013.

“I personally have a lot of optimism and believe the salvage value compared to the investment is well protected,” Caldwell said.

Port Commissioner Pinnick asked if the intellectual patents were worth anything if the Port was forced to scrap everything. Nelson and Port attorney Art Blauvelt said it was hard to pin down an exact value figure because the equipment would be needed.

RECEIVERSHIP

NewWood went into a court-appointed receivership last year when the company’s owners simply ran out of money, laying off its entire workforce. Craft 3, which holds the primary bank notes owed by NewWood, filed foreclosure notices against the wood products company in August of last year. Superior Court Judge Mark McCauley appointed Dick Hooper and Pivotal Solutions, Inc. to handle the potential sale of the company and recover as much money for unpaid bills and creditors as possible.

As of Aug. 31, Craft3 was owed a total of $6.86 million, according to filings by the receiver. Even though the sale to the Port won’t recover the full amount of funds, Craft3 Director John Berdes said the non-profit supports the sale to the Port and is, in fact, providing the financial support for the Port to take a loan out to cover the $1.3 million purchase price. During the meeting, Pinnick asked if the loans are guaranteed by the federal government or how it works.

Berdes said that the organization is a private, non-profit corporation that receives charitable support from corporations, financial insitutions as well as state, local and federal governments and does utilize guaranteed loans from the U.S. Small Business Administration and the Department of Agriculture. The organization has seen some successes on the Harbor, helping Coastal Community Action Program with their wind turbines at Grayland and one of the initial investors of Seabrook on the North Beach. The organization also provided the funds for Harbor Paper when it re-started. That mill went dark a few months ago.

“Our primary mission is to make high risk investments that FDIC regulated banks cannot make for risk management purposes and we want to see economic, social and good environmental outcomes resulting from those investments,” Berdes told the Port.

Notice of the Port’s interest in buying NewWood was first disclosed in a meeting notice sent last week. Prior to that, it was never mentioned at a public meeting by the Port commissioners or Port staff. After the meeting, Thompson said the idea had been kicked around since October.

Asked why there seemed to be a rush to approve the agreement, Port Executive Director Gary Nelson replied, “Business happens at its own time.”

Nelson said the Port didn’t hire any direct consultants to look into the purchase, choosing to rely on other numerous appraisals in determing to buy the equipment.

“We’re not going to operate it,” Nelson said. “Our interest is if it goes in the waste basket in a forced liquidation position, what’s the bottomline? That’s the concern.”

“In October, it became very clear that Craft3 was becoming impatient with finding someone so we were heading for blow torches and machinery being moved out,” Blauvelt said. “We have had numerous conversations … and this is what we have ended up with.”

Berdes said that the “timing of the transaction is urgent because the receiver has a legal obligation to all of the creditors, including Craft3, to be expedient in recovery of dollars. The judge with Craft3’s support told the receiver to not seek bids from liquidators, the blow torches, which you aptly called, for 60 days following his initial order approximately six months ago. We encouraged and supported the receiver’s efforts to recruit operating to the site. That’s what we do. We failed twice. The night before the receiver was prepared to sign a liquidation bid, we said, ‘Give us one last chance to try and put something together.’ And the result of a lot of collaboration and cooperation and risk sharing here is potentially resulting in an operator, an employer in this community. We have no further leeway in the court or with the receiver to prevent liquidation. It would be a dark day for us and many people in the room. That’s what’s driving the timing here. We know it’s not perfect. Nothing about this experience has been perfect, but we believe that it can succeed.”

THE RISK

Triventas, a Pittsburgh-based investment company with a private investment firm focusing on green building products, expressed an interest in the company this past spring with a public presentation to the Port commissioners over the summer. Ultimately, a sale agreement couldn’t be worked out. In a declaration filed with the court in August, Marcia Frey, a vice president with the receiver, noted that multiple extensions of feasibility reviews were granted to Triventas, but the company “did not waive its feasibility contingency and that agreement was terminated.”

Frey also noted in her filings that since marketing NewWood’s equipment in December of 2012, many different companies were contacted by the Receiver.

“Most all of the parties contacted stated they were not interested in an outright purchase but may have some interest in one or more pieces of equipment,” Frey wrote. “Several companies were surprised to hear that the company and its assets were for sale stating that Defendants’ management (at NewWood) had been in contact with them after the appointment of the receiver and incorrectly informed them that the receiver would be seeking equity investments for resumption of operations and not an outright sale.”

Frey noted that many buyers “interested in acquiring the entire operation and operating the business” toured the mill, met with Port officials, the Grays Harbor PUD, vendors, potential clients and local economic development officials.

After Triventas came and went, 32 Laight Street Partners, LLC out of New York City emerged as a potential bidder on NewWood and was on track to buying the company, with an asset sale agreement filed with the court back in August.

Both parties had agreed on a purchase price of $1.75 million for the equipment and patented process. Judge McCauley had been set to hear arguments involving the sale back in September, but, then the hearing was inexplicably canceled in the last hour.

The latest proposal once again involves Triventas with an affiliate the company created called NewWood International LLC (not affiliated with the old owners with a similar name). But, instead of directly purchasing the equipment, the Port commissioners decided to foot the bill upfront.

Berdes said that after the Port’s sale, Craft3 has indicated a willingness to finance the upstart costs Triventas may need.

“We will support their ultimate success,” Berdes said.

NOT MUCH SUCCESS

The NewWood facility has been an anchor tenant at the Satsop Business Park and was actually the second tenant ever at the business park in the shadow of the giant cooling towers. The first tenant, SafeHarbor, opened an office in 1999 and left a few years later. The park doesn’t have many anchor tenants left.

In 2001, Boise Cascade opened the facility with big dreams to divert thousands of pounds of plastic from the waste stream and to employ 120 people.

“It’ll be another alternative for builders to choose from,” said Doug Bartels, Boise Cascade spokesman, told the Daily Journal of Commerce back in 2001. “It’s a far different product than what’s out there.”

“There are so many things about it that are so much better than wood,” a store owner added. “I don’t know why anyone would use wood.”

The facility ran into issues getting a workable product.

A few years later, a New York Times article noted that OfficeMax had taken over the facility after being sold off by Boise Cascade. The company hired 70 people to manufacture home siding in the factory. By 2006, they were closed.

NewWood purchased the facility from OfficeMax in 2010 with more big dreams. Advertising the potential for 150 jobs, KING TV showed up with a news crew in November of 2010 as more than 800 job seekers applied for the positions.

“It’s overwhelming,” NewWood Manufacturing CEO John Bowser told the news broadcast. “I don’t know how I’m going to take care of all those people.”

In the end, everyone hired was laid off.

PUBLIC COMMENT

The Port’s presentation Tuesday morning lasted about 10 minutes with another 10 minutes of questions by Port commissioners and staff. The public comment lasted about an hour with dozens of questions from the public.

Ray Lindholm of Hoquiam says he knows manufacturing and owns his own company fabricating front-end loaders.

“It seems to me unless you have a specific buyer for that equipment to manufacture this, you’re sitting on junk,” Lindholm told the commissioners. “And we’ve seen this time and time again.”

He recommended the Port get its own assessment of the scrap value of the equipment, instead of relying on third-hand reports, so that The Port will know if the scrap value is worth more than $1.3 million.

“That would be a wise thing to get before you get into this so you know your total losses before you go into this because I have a funny feeling that if this goes bad your appraisers aren’t going to be there with the numbers that you’re talking about,” Lindholm said. “If you’ve used this product at all at anytime in the last 15 years since this stuff started going on to the market. It’s three times higher than the actual market, who’s going to be your market? … It’s a lousy material versus just a standard, alluminized Hemlock 2 x 4 or 2 x 6, which is one-third the price. And that’s what worries me.”

Randy Manley of Hoquiam called the product “a gimmick” that he’s avoided while building homes.

“Boise Cascade tried to make this product, then NewWood, and now we have another company,” Manley. “…This other company says they’re going to come in, streamline things and make it more efficient and make it work. I don’t know if it can be done or not. I don’t know that. But it’s a concern that I have. It’s interesting to hear that the finance company caters to high risk. And that scares me. If this deal were not made, would (Triventas) come in and do it?”

“If we did not take over the assets, would this other company come in and do it on their own?” Alissa Shay, the business manager, responded during the meeting. “I think the answer to that is we wouldn’t be here today if we didn’t have to be.”

Elma resident Fred Rapp told the commissioners that he trusts they’ve done their job and looked at the potential risks involved.

“Many times, we’ve seen over the years, companies that think they have a good product but it doesn’t work for them,” Rapp said. “Then, it goes into receivership and the investment for the companies that come afterwards is quite a bit less and that makes it easier to make a profit.”

Besides the $1.3 million investment into the NewWood equipment and patents, the Port would also spend $300,000 in capital costs to repair the Port-owned building, including its roof.

Blauvelt notes that part of the sale would go to pay off the personal property taxes owed by NewWood. Grays Harbor Treasurer Ron Strabbing says that more than $179,000 is owed for tax years 2011, 2012 and 2013. The rest of the sale price would likely go to Craft3, depending on how the purchase and sale agreement works out and the receiver’s motion in court works out.