WALTHALL -Webster County now has another financing partner to help spread the risk of leasing the Red Kap building to Front Line Apparel Group.
The Board of Supervisors voted Oct. 31 to proceed with an application for a $375,000 loan through the Tennessee Valley Authority, which will be half of the loan necessary to complete the transaction for the industrial building at Mathiston.
The county will use that loan plus a $375,000 "CAP" loan from the Mississippi Development Authority, if both are approved, to buy the vacant building and lease it to FLAG. The Connecticut-based company plans to manufacture Army combat uniform trousers there.
The board voted 4-0, upon a motion made by Supervisor Casey Weeks and seconded by Supervisor Robert Hitt, to proceed with the TVA loan application. Supervisor Janice Lamb was absent.
Also approved was a motion authorizing Board President Larry Crowley and Chancery Clerk Russ Turner to sign on behalf of the county for the CAP loan application for the same amount. Both loans will be for a term of 7.5 years and for the same interest rate. The county plans to lease the building to Front Line for about $9,300 a month to retire the debt.
The county had previously planned to borrow the entire $750,000 from MDA to buy the building. However, Chandler Russ of Tupelo, economic development specialist for TVA's Mississippi Region, told the board last week that TVA would accept an application from the county for half that amount. Russ said he foresaw no problem with the loan being approved.
While acknowledging that every economic development deal has some risks, he told the board, "I think you've got ... a good one in front of you. ..."TVA is committed to trying to help you soften that risk as much as possible. We want to be a partner with you and Front Line. You have our commitment that we'll work with you."
He said TVA would require a personal and corporate guaranty for the loan from Front Line with some additional "teeth" other than an unsecured promise to pay.
Russ confirmed that Webster County would be responsible for repaying the loan if a default is made. However, he said this would only be as a last resort after TVA exhausted all other measures by working with the county in collection efforts and liquidation if necessary, and in putting the building back on the market to find another leaseholder.
When Crowley asked how long TVA would work with the county in such case, Russ said, "We'll be flexible. Our interest is in selling power. ... We don't want an empty building."
Victor Winogradow, FLAG'S vice president/chief financial officer, told supervisors the military had agreed to revise its proposed contract with Front Line to a fixed five-year contract for $30 million instead of one that would be renewed annually.
The company's projected income should provide enough of a cushion to cover the lease, he said. In addition, the company is to receive nearly $500,000 total from two Community Development Block Grants for training/working capital and equipment.
Winogradow also pointed out that the county's investment in the project by providing the building will only be 11 percent of the total project cost of $3.1 million.
"All the components are there to mitigate the risk," he said, adding that a quality workforce is the key.
"This will be the best military sewing facility in the country," said Winogradow. "The potential is unlimited."
Plant Manager Jerry Riggan said, "The success and failure of this venture is going to depend on (whether we can) produce a quality product and ship it on time," noting that the product has already been sold. Riggan said he has about 300 job applications on file, most from people he worked with while plant manager at Red Kap.
Winogradow said the company wants to start moving equipment in and begin training as soon as the deal is closed and start production in January. Front Line should have Department of Defense verification of its contract by Dec. 19, he said. Dec. 20 has been set as the tentative closing date.
Board attorney Buchanan Meek Jr. was to submit a proposed lease agreement to Front Line and a buy-sale agreement to the Realtor handling the sale of the building. A recent appraisal of the property and two review appraisals will also be necessary for the CAP loan application.
Also during the meeting, Weeks related that he had received calls from some people who claimed the board did not want the company to locate in the county, which he said was not true.
"People don't understand the process it takes of getting something established," he said. "We're doing everything we can to get y'all here."
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