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Rushford EDA revamps forbearance terms

By Kirsten Zoellner

Fri, Jul 18th, 2014
Posted in Rushford Government

There’s no denying that the Economic Development Authority’s revolving loan fund has done great things for Rushford’s economic growth. At least two past audits have garnered praise for its efforts. Still, there is room for improvement, as noted by recent EDA discussions. According to EDA Chairman Tom Driscoll, the entity is currently revamping terms of forbearance and looking at accounts that are currently in forbearance.

The EDA has opted to go through process of acknowledging default, upon legal advice, of accounts that are in forbearance and non-compliance with loan terms. “The EDA has decided to start using the d-word, default, in terms. It puts in potential liability,” noted Driscoll. “’Default’ comes with a tremendous amount of weight.”

Three companies are currently in default of the terms of their forbearance. EDA conclusion has been to acknowledge the default, then allow time for companies to cure the default. If the default is not cured, the EDA has futher options. With the new terms, the EDA is asking for an exit strategy from forbearance. Companies will continue to be asked for details of milestones and financial documentation as the EDA continues to aid in managing the situation.

GForce Digital Technologies, LLC (formerly GForce Ink, LLC) has been in forbearance for 40 months. Payments were being made, but stopped. The company has requested 18 months additional forbearance. The EDA countered with 12 months additional to allow time to help negotiate and manage the situation. The business has complied with all other terms.

Another option available to the city is the use of a forensic accountant to determine the viability and worth of security on the loan. “A five year old loan is about as relevant as a five-year old cell phone. It’s changed a great deal since the beginning,” noted Driscoll referring to the changing nature of technology in business.

“We’re concerned about security position and asking, if it becomes necessary, to engage forensic accountant to make sure security is still there and still valid to make sure we’re collateralized properly,” added City Administrator Steve Sarvi. The city would front cost of audit, then the cost would go on back of the loan. The expected cost of an audit first look is estimated at $10,000. To dig into company worth, including worth of patents and code, the cost could reach $20,000-30,000. “We’re not in a satisfactory position until we answer the security question,” continued Sarvi. “The EDA wants to recover funds and revolve them. If they weren’t in business, we couldn’t collect. This is the best option we’ve seen so far.”

“I commend the EDA on discussions,” added City Attorney Terry Chiglo. “If both sides agree to terms, if in non-compliance, give them a chance to comply. Give them time to perform. If EDA needs forensic accountant, do now before it reaches complete default and I have to collect loan.”

The council voted unanimously to acknowledge default from November 2013 to May 2014 and provide 12 months further forbearance, from May 2014 to May 2015. Payments are scheduled to resume May 2015.

The council also approved extending the default cure period for Historic Bluff Country to October 31. HBC has been working with a Community & Economic Development Associates representative on a modified business plan. However, due to the CEDA representative leaving their position, as well as the height of the tourist season, the EDA has suggested extending the date for the business plan to August. A financial plan for exiting forbearance will be due by November 1.

Rushford NanoElectroChemistry Company is also currently in a state of default. While the company is current on all other terms of its agreement, it has not provided financial statements as requested. In forbearance since November 2013, the EDA has repeatedly requested quarterly financial statements, what the city did receive was inadequate or not at all, according to Sarvi. A cure letter with a due date of July 7 was sent, but to date, financials have not been provided.

The EDA has determined additional time to cure the default, until August 28. This will allow the owner to compile financial data and for the EDA to review it. Forbearance runs out in September and the EDA is anticipating a request for further forbearance. “We’re not doing any favors kicking it down the path,” added Chiglo.

“The options seem reasonable,” noted Councilor Vern Bunk. “There needs to be some urgency applied for this. I encourage the use of a forensic accountant to help structure what the problems are and help formulate a plan.”

In other news, the city has come to an agreement with Steven and Joan Lee regarding financial assistance for the cost of a fence to be put up west of the Lee residence on Highway 43/Mill Street and Harry Street. Due to location of the home and high winds in that area, the Lees put up trees in what is the state right-of-way. Those trees have now had 16 years of growth, but the state is requiring their removal due to the reconstruction of the highway. The property presents a unique situation due to the location of a pipe in the right-of-way which will prohibit the property owners from putting trees back in that location, unlike other properties within the city.

The city had initially offered $1,200 assistance for the fence. After some negotiation and further review, the city has approved the $3,208.57 cost (not to exceed) for a 72-foot fence that will be constructed on the property line. Made of PVC and concreted in, the fence has a guaranteed wind resistance to 130 mph. Steven and Joan Lee will pay all installation costs.

The council approved the measure 3 to 1, with Councilor Bunke opposed. The city will also place a “No Parking” sign along that section of Highway 43.

The next regularly scheduled council meeting is Monday, July 28, at 6:30 p.m., at city hall. The public is encouraged to attend.

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