Agenda - Economic Development Authority - 01/13/2011

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Economic Development Authority (EDA) Date: 01/13/2011 By: Aaron Backman Administrative Services Title: MultiSource Manufacturing Closing & RLF Update Information Item #: 4. 2. Background: MultiSource Manufacturing, a company based in Burnsville, MN, needs additional and better facility space to accommodate its growth. The company specializes in performing complex precision machining, plastic fabrication and assembly services for a variety of industries, including medical, aerospace, defense, computer, and other high -tech applications. As EDA members are aware MultiSource has been considering purchasing the former Harber Industries building. At the Special EDA meeting on November 18th the EDA discussed in closed session the sale of City property adjacent to the Harber building and potential financial assistance. A contract sale of the City's property and an RLF loan for fixed assets were reviewed. Tax Increment Financing (TIF) was considered but ruled out at this time based on previous TIF assistance on the property and the "but for" test. Following the EDA meeting a written proposal was provided by the Economic Development/Marketing Manager Backman to MultiSource. On November 29th, a revised proposal was sent that provided a $250,000 RLF loan for 7 years for equipment or 15 years for the building. The interest rate remained at 3.5 %. The contract financing for the land acquisition was proposed as a $250,000 forgivable loan. The interest rate was also 3.5 %. The term was a 15 year amortization with a five year balloon (monthly payments estimated to be $1,751.46). On November 30th the Economic Development/Marketing Manager Backman had a conference call with Gary Hadley, President/CEO and Bill Hibbs, Chairman of the Board for MultiSource. We discussed the financing options. Mr. Hibbs indicated, after consulting his partners, that MultiSource would not pursue the City's land purchase at this time, but did want to move ahead with the RLF Loan and the purchase of the former Harber Industries building if possible by the end of December. They also indicated that the buyer of the property would be MS Holdings, LLC, a mirror entity created for that purpose. At the December 9th EDA meeting Gary Hadley indicated that the company likes the Ramsey location, wanted to close before December 31st, anticipated a late March or early April move -in, and at some point would consider additional buildout at the site. The Ramsey EDA is pleased to report that the transaction regarding the sale of the former Harber building to MS Holdings was completed on December 29, 2010. According to Gary Hadley, the company intends to make its new Ramsey location its largest in terms of employees. Once building renovations are completed, MultiSource plans on setting -up operations for 85 employees initially. The site does enable the company to construct a 20,000 sq. ft. addition based upon future growth of the company. In mid - December Mike Schuffenhauer, MultiSource's COO, who will be implementing building modifications and coordinating the company's move, began discussions with City staff regarding changes required for a parking lot expansion to accommodate a building expansion. Planning staff has provided a written response to MultiSource. Likewise, further discussions were held regarding the RLF Loan. MultiSource did agree to provide three years of corporate tax returns for both MultiSource Manufacturing and for MS Holdings. At the end of December a draft of the subordination agreement between U.S. Bank (the senior creditor) and the Ramsey EDA (the junior creditor) was provided to the City. Both the City Attorney and the Economic Development/Marketing Manager have concerns with the provisions of the subordination agreement. The Ramsey EDA stands ready to work closely with the company and its representatives if a satisfactory subordination agreement can be reached.