Failed Company Skipped On $2.1 Million State Loan, Wants More
Michigan corporate subsidy officials support extended benefits for firm’s successor
An Upper Peninsula company that failed in 2016 and defaulted on nearly $24 million in loans obtained through government programs was back in business under a new corporate ID and hoping for more government assistance by 2018. Among the parties that lost money: Michigan taxpayers, who were out more than $2 million.
That’s what the Mackinac Center for Public Policy found when it looked at documents it obtained from the Michigan Economic Development Corporation. The MEDC, which runs the state’s business subsidy programs, was owed about $2.15 million from RNFL Acquisitions when the company ceased operations and sought protection in a bankruptcy-like proceeding in a Delaware state court.
RNFL processed forestry waste into activated carbon products at a facility on the old K.I. Sawyer Air Force Base near Marquette. It was then shuttered for a year before it was purchased by the New York-based investment firm Sandton Capital Partners in late 2017 and reopened as National Carbon Technologies.
Almost all of the proceeds from the $19.1 million sale went to RNFL’s senior secured lender. That left Michigan government and more than 90 other creditors out in the cold. The creditors had advanced more than $21 million to the company under a federal New Markets Tax Credit loan program meant to encourage lending in economically depressed areas.
The firm’s reincarnation was viewed as a significant victory by James Mennell, CEO of both National Carbon and its failed predecessor. He cited the company’s use of Michigan products and 30 Marquette-area employees in an email to MEDC officials in May 2018 that asked about getting more government assistance.
The greatest potential for expanding the market for National Carbon products was overseas, Mennell said. He wrote that the company was “interested in whether they (sic) may be any funds” from the state to help with infrastructure costs to develop Great Lakes shipping or rail transport options.
State and local officials also supported a 2018 request to transfer a Renaissance Zone designation and the multiyear tax exemptions that go with it from RNFL to National Carbon, the MEDC documents show.
MEDC spokesman Otie McKinley said this week that Mennell “never pursued (state) incentives” subsequent to the May email and that state officials have had no recent contact with the company.
Michael LaFaive, a fiscal policy analyst with the Mackinac Center and critic of corporate welfare programs, said it is nonetheless brazen that the top official of a company that skipped out on a $2 million loan would be back months later inquiring about more handouts. It is also emblematic of what’s wrong with government business subsidies in the first place, he said.
MEDC “thinks they can pick winners and losers. In this instance, they picked a loser. But now they’re back looking for more,” LaFaive said.
"Maybe [National Carbon] can make money this time. But they got [RNFL’s] assets in a fire sale. And Michigan taxpayers helped pay for the assets and got nothing," LaFaive said. “That’s why they should never make these deals in the first place.”
McKinley defended the Michigan Business Development Program administered by the MEDC, which he said “has created more than 29,000 jobs and delivered more than $7 billion in capital investment” since 2012.
But as LaFaive noted, such claims would be easier to assess if the MEDC and its beneficiaries were more transparent.
Mennell did not respond to an email request for comment, or a messages left on his voicemail.
An unidentified representative of Sandton Capital Partners said that he would inquire into the issue when reached by phone, but has so far has not returned the call.
LaFaive wants to know what ownership stake Mennell has in the new company, if any. In news reports, he was described as an investor as well as the CEO of RNFL. Even if that investment was wiped out in the Delaware court proceeding, documents related to the case suggest that Sandton also purchased intellectual property and patent rights from RNFL’s parent company, of which Mennell is also the CEO.
Geoffrey Berman, who managed the quasi-bankruptcy for a Los Angeles-based financial firm, said the sale of the intellectual property (and continued involvement of Mennell) was critical to salvaging the company as a going concern. Otherwise, RNFL would likely have been dismantled altogether, he said, and its creditors would have lost even more money.
Marquette County Administrator Scott Urbish said county officials are pleased the K.I. Sawyer operation, which he called “a creative ... unique business,” survived. Although the county was also among creditors whose debts were uncollectable — RNFL owed more than $15,000 in rent to the county when it was shuttered — National Carbon is up-to-date on its lease payments, Urbish said.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.