CARTHAGE — KeyBank has blocked Carthage Specialty Paperboard from making any payments on a loan the manufacturer has with several public agencies from its 2014 expansion project.
Michelle L. Capone, regional development director for the Development Authority of the North Country, said DANC, which is the leading agency for the $1 million loan package, was notified last week that Carthage Specialty Paperboard violated a covenant in an agreement for a loan it has with the bank — which is the senior lender — and would not allow it to continue making its interest-only payments on the multi-agency loan.
Lyle V. Eaton, chief financial officer for the Jefferson County Local Development Corp., said Carthage Specialty Paperboard violated the Earnings Before Income Taxes Depreciation and Amortization covenant, which required the company to obtain a specified level of profit used to pay back the loan to satisfy the agreement with KeyBank or else it could declare the loan in default and send a demand payment letter.
“KeyBank has blocked all payments,” Mr. Eaton said. “We’re trying to deal with KeyBank.”
The publicly-funded loan by DANC, the Jefferson County Industrial Development Agency, North Country Alliance, North Country Economic Development Fund and the village of Carthage was dispersed in 2015, Ms. Capone said.
Carthage Specialty Paperboard needed the loan to help with cash flow after spending $3 million, which was more than the manufacturer expected, on an expansion project that involved rebuilding a paper machine to increase production by 20 percent. The project was expected to bring 14 more jobs to the manufacturer.
Each agency gave Carthage Specialty Paperboard a 10-year term at different interest rates to pay back the loan, except JCIDA, which gave a five-year term, Ms. Capone said. As the lead agency, DANC collected monthly payments from the company and divided it among the parties
“What is important to public entities is maintaining jobs and the community,” Ms. Capone said.
In August 2015, however, KeyBank prevented Carthage Specialty Paperboard from making principal payments on its loan with the public agencies because of the agreement for KeyBank’s loan and the manufacturer could make only interest payments.
Ms. Capone said DANC signed a subordinate agreement on behalf of all the agencies, which all signed a participation agreement, as part of the finance deal with the multiple lenders involved, including the bank. The agencies are behind KeyBank and “another mezzanine lender” in terms of payment priority.
“The bank always wants to be first before all public lenders,” Mr. Eaton said. “IDAs and public financing agencies are usually financing any gap between what the bank usually covers and what the company needs.”
Carthage Speciality Paperboard made interest-only payments following KeyBank’s decision in 2015, but Ms. Capone said its payments were 60 days past due at the time KeyBank blocked those payments.
“We’re hopeful that (Carthage Speciality Paperboard is) going to turn their operations around and continue profitably in the future,” she said.
Ms. Capone said DANC will continue working with KeyBank.
“When you’re a subordinate lender, you want to continue to work with the senior lender to help the company move forward,” she said. “And sometimes that means being a patient lender in work out situations.”
Mr. Eaton said he would encourage the JCIDA board of directors to ensure the agency receives protection when signing a subordination agreement “in the event something happens.”
“The bank wouldn’t cooperate with us at all,” he said.
Ms. Capone said Carthage Speciality Paperboard owes $245,150 to DANC, $220,635 to North Country Alliance, $219,938 to the North Country Economic Development Fund, $98,060 to Carthage and $196,120 to the JCIDA.
CEO Patrick J. Purdy had no comment on the payment situation, but said that the company employs about 80 people and that employment numbers have not grown since rebuilding the paper machine “because the market has not improved.”
KeyBank could not be reached for comment.