NEW ULM - The New Ulm City Council approved Monday a method, with requirements, for eliminating the outstanding loan debt that Clearwater Marine, Inc. has with the city.
Clearwater is the parent company of the Palm Beach Marinecraft, Inc. and Weeres Industries brands, which manufacture pontoon, water bike and swim raft in New Ulm. Forty-four workers are employed at the two facilities.
Clearwater has two loan debts with the City: $51,461 for the 1999 Revolving Loan and $239,440 for the 2009 Revolving Loan. Both loans were initially issued for $250,000 each.
Since September of 2010, Clearwater Chief Financial Officer Francis Luikart has been in contact with the City for its missed loan payments. He told the City that the company was seeking a buyer to keep the employees and facilities in New Ulm.
Premier Pontoon Inc. of Wyoming Minn. has indicated that it is interested in purchasing the company and maintaining business operations. Premier also indicated that it would ramp up production at the facilities, which may lead to hiring. Clearwater's loan debt is the only remaining obstacle to the sale. Clearwater sent a request to City for it to write off the debts.
City Manager Brian Gramentz informed the Council on Tuesday about the 1999 loan's additional requirements for modification.
He said the funds came from a federal government grant to the State of Minnesota, of which the State provided $250,000. He said the payments go to the 251 Revolving Loan Fund, which can only be used to assist low and middle income families. Because the State still counts as the lender, it requires State approval to modify or write off. The approval is currently unattainable during the state government shutdown.
The 2009 loan was directly through the City and went to its 250 Revolving Loan Fund, so the City can modify or write off the loan as it wishes.
Luikart said that Premier was looking to resolve the deal by the end of the month, so a quick solution on the debt was needed.
Gramentz said that, since it was unlikely that the City could recapture the loan debts from Clearwater, some options were: someone could pay off the debt, Clearwater could foreclose or the City could attempt to write off the debt, which the State could reject when it returned to operations.
Councilor Les Schultz asked why the idea of using the profit from the sale to pay off the debt had not been suggested.
Luikart said that all the profit from the sale would be directed towards a settlement of the company's first mortgage.
Gramentz ultimately suggest an idea brought up by New Ulm City Attorney Hugh Nierengarten. It suggested that the City could pay off the 1999 loan and write off the 2009 loan.
The Council expressed interest in this option, because it did not require state approval and could prevent the loss the of jobs. However, the Council expressed concern about the details of what Premier could do and how to ensure the legitimacy of the sale.
Nierengarten said that because there was no formal agreement with Premier, there was no guarantee that Premier would follow through on its proposal and no recourse by the City if it acted otherwise.
"[Premier] can simply come in and close the place," said Nierengarten, "We are simply acting in good faith."
He suggested that a solution for the Council would be for it to make three requirements before it acted: One, Clearwater would provide the formal Letter of Intent to the City Attorney. Two, the City will only act if none of the proceeds of the sale go to Clearwater. Three, the City will not act until the sale is completed.
The Council approved Nierengarten's suggestions. The Council passed a motion to pay off the 1999 loan with funds from 250 Revolving Loan Fund, which the City can use as it wishes, and write off the 2009 loan debt, with the requirement that the three suggestions were met.
The total in lost repayment funds for the City will be more than $290,000.
Luikart said Clearwater approved of the deal.
"We're excited about the sale and being able to keep the workers," said Luikart, "I'm impressed with [Nierengarten's] solution to a difficult problem.
In other business, the Council approved the issuance and awarding of the $3,225,000 2011 Capital Improvement Projects bond to Morgan Keegan & Co., Inc. of Memphis, Tenn.
The true interest rate for the bond was 1.987 percent, well below the projected interest rate of 2.4 percent. The City also received a "Aa2" rating, which is just two steps from a "AAA" rating.
Public Finance Management, Inc. representative Jon Burmeister, who worked on the bid tabulation, said the high rating and low interest rate were do to the excellent organization and quality if New Ulm's finances. He said that, in addition, the fact that New Ulm is located in Minnesota helped because of the state's high ratings.
The Council also removed a consideration of purchasing the property 117 S. Minnesota St. from its agenda because of insufficient information about the property. Particularly, the Council was concerned about the legal requirements of handling the renters at the property.