Port of Grays Harbor commissioners voted Tuesday to go through with the purchase of equipment and the technology needed to operate the NewWood composites company at the Satsop Business Park, agreeing to a purchase price of $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 because the company is in the middle of a foreclosure process.
The move comes after a court-appointed receiver for the company couldn’t find a buyer for the facility. If approved by the judge, the Port of Grays Harbor will be the fourth owner of NewWood in less than a decade. The three previous owners were unable to find a successful niche market for the imitation wood product made of wood scraps and plastic. The sale essentially makes the Port a middle man. The Port already owns the building and says it has a company poised to operate the facility, with the Port leasing out the equipment and allowing the use of the technology. Port officials say that if the whole plan fails and no one can operate the the facility, it could recover the sale price by selling the equipment for scrap.
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 unanimous decision of three resolutions at a special meeting Tuesday morning paving the way for the sale during.
“This has been an ongoing issue for quite a while and we have done a lot of due diligence,” Thompson said. “This is a good investment. … 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. As many as 150 people worked there in 2010. Then, NewWood ran out of money, laid off all of its workforce and the foreclosure process started late last year.
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. But a deal couldn’t be worked out.
When it looked more likely that the facility would be dismantled and sold off, the Port stepped in as the buyer and looked to Triventas to see if they were interested in running the facility. Triventas has created an affiliate company called NewWood International LLC, which is not affiliated with the old owners with a similar name.
Thompson noted that 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.
The proposal states that while the Port would purchase the equipment, the private company would have 90 days to do its due diligence and if it doesn’t like what it sees, the company could walk away without a tenant to run the turnkey operation. That would leave the Port with the option of either looking for someone else to run what would be a Port-owned facility using the Port-owned patents or scrap it all.
The Port commissioners passed one resolution authorizing Nelson to sign an agreement with the receiver for the purchase of the NewWood Corporation’s equipment and intellectual property. A second resolution authorized Nelson to sign the necessary documents to borrow the purchase price from Craft3, the original holder of NewWood’s note. 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 that would use 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 $48,000 a month and beginning Dec. 31, 2017, the rent would raise to $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 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 it in 2013.
“I personally have a lot of optimism and believe the salvage value compared to the investment is well protected,” Caldwell said.
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. He also questioned whether there is a market for the product. “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, 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,” said 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.”
For a longer version of this story, visit www.thevidette.com or read the Nov. 7, 2013 edition of The Vidette.