84 Lumber attorney: Loan not bailout
A consultant for 84 Lumber Co. on Wednesday said a $15 million taxpayer-backed loan the company is seeking is not a government bailout, but several Fayette County residents who attended a public hearing on the request seemed unconvinced.
"What it is not, is a bailout," said Larry Segal, a consultant with Impact Pennsylvania Strategies of Berwyn in Chester County, at the outset of yesterday's hearing at the Fayette County Redevelopment Authority office in Uniontown. "What this is, is an economic development loan request."
Washington-County based 84 Lumber is seeking the 17-year loan through a federally funded Community Development Block Grant program. The loan program, which is funded by the U.S. Department of Housing and Urban Development, is administered through the state's Department of Community and Economic Development.
Noting the downturn in the housing industry, Segal said 84 Lumber has reduced its staff from a high of 10,000 associates to 3,700. The loan would enable the company to stabilize as it waits for the housing industry to improve, Segal said, creating 325 jobs statewide.
A DCED consultant, Jon Haglund of Urban Design Ventures in Homestead, yesterday said Fayette has been asked to sponsor the loan request but will have no financial responsibility if 84 Lumber fails to repay it.
Haglund said 84 Lumber has posted property valued at $30 million as collateral on the loan. If the sale of those properties failed to satisfy the loan, the state would pay it back with discretionary CDBG funds.
Fayette was asked to sponsor the loan because DCED cannot loan the money directly to 84 Lumber. Haglund said Fayette is one of 20 non-entitlement CDBG counties statewide that can sponsor it, but Fayette was asked because it has a good working relationship with the DCED.
Several residents who attended the hearing questioned the need to help 84 Lumber owner Maggie Hardy Magerko and her father, company founder Joe Hardy, keep the business afloat.
"Why should we have to bail out the richest man in Fayette County?" said Ruth Newell. "Why should we have to bail out a rich man when we have the poorest in the state of Pennsylvania living in this area?"
One resident noted that Magerko, who also runs the posh Nemacolin Woodlands Resort in Farmington, is listed among the top 400 richest people in America by Forbes magazine. As such, he suggested Magerko could obtain a traditional loan, or sell off company assets, as an alternative.
Another resident, George Haggerty, said "a millionaire up in the mountains, with all this money, what's wrong with him going to the bank, like I have to?"
Cheri Bomar, corporate counsel for 84 Lumber, said the company is seeking the government loan because traditional banks are not lending to businesses in the housing industry. In addition, she noted Magerko doesn't have instant access to the cash 84 Lumber is seeking.
"It's not like Maggie has a billion dollars liquid," Bomar said. "What she's trying to do, is save the company, save jobs."
The company wants to use the money as part of a $45 million loan package to pay off an existing loan, which Bomar said was initially taken out for $195 million but has been paid down to $55 million.
The current loan has an 18 percent interest rate, Bomar said, and requires that the proceeds of any sale of company assets be put toward the loan. Segal said that prevents 84 Lumber from using the money "for cash-flow purposes, really putting 84 Lumber in a pinch."
In addition to the $15 million CDBG loan, 84 Lumber is seeking to fund the rest of the loan package through loans from Washington County, a private lender and Magerko.
All three Fayette County commissioners attended yesterday's hearing. They could vote as early as next Thursday on the request to sponsor the $15 million loan.