On Wednesday a huge majority in the New Hampshire House voted to pass Senate Bill 30 aka the “Balsams Bill.” The bill allows “unincorporated places” to become a tax district, which also means they can now get funding from the state and have all taxpayers foot the bill if the deal fails. Of course, many legislators don’t want it to be referred to as the “Balsams Bill” but this bill didn’t come up any other year until developer Les Otten had his hand out demanding the state front a bond for him or he wouldn’t bother developing – “Plan B is Plan A.”
In case you weren’t aware, the Balsams is completely dilapidated (see the photos and inside is even worse – it will most likely have to be demolished and rebuilt from the ground up). Since there is only around 3,000 acres that the owners actually own (Over 5,000 acres went to conservation – timber that was worth a minimum of $3.5 million was sold to them for $850,000), the actual land is probably worth around $1 million, if that. So the taxpayers are going to be putting up $28 million for buildings that are worth nothing and land that is barely worth anything in a district with a tax base of about 25 people.
Another little twist of information was also discovered yesterday regarding the financing of this project. The below was sent to some representatives:
What is the funding structure of the project?
The Balsams Phase I development will cost $143 million in investment and will be funded as follows:
• Owner’s Investment: $45 million
• Construction Financing: $50 million
• Senior Secured Bank Debt: $20 million
• State Guarantee of Private Bond: $28 millionA private lender has been identified that will provide financing for both the Senior Secured Debt and the Senior Secured Bond, provided that The Balsams is able to secure credit enhancement from the State of New Hampshire in the form of the guarantee proposed in SB30.
How will financing work? The $28 million development District bonds issued by BFA would be paid from the following sources, in the following order of priority:
• First, from district assessment revenue
• Second, from resort operating revenues and the developer;
• Third, in the event of any default, from foreclosure and sale of resort assets, which the State and bank would sell to a third party; and
• Fourth, any deficiency would be paid by the State of New Hampshire guarantyIs there an impact on the State bond rating? Input from the State Treasurer indicates that there will be no impact and that the increased BFA bond authority and subsequent guarantee will not, in and of itself, cause the rating agencies to take action.
The key paragraph here: “A private lender has been identified that will provide financing for both the Senior Secured Debt and the Senior Secured Bond,provided that The Balsams is able to secure credit enhancement from the State of New Hampshire in the form of the guarantee proposed in SB30.” In other words, Otten couldn’t secure private lending from a bank without the state guaranteeing a different bond that will most likely, even though it shouldn’t, be approved by the Business Finance Authority and then of course the Governor and Executive Council.
Otten has a history of “thinking big” but not quite thinking of all the risks. In an article during his run for Governor of Maine, Marian McCue and John Christie write about the “Rise and Fall of American Skiing Co.”, Otten’s big claim to fame and its demise:
Both the financial records of the company and interviews with experts suggest that Otten’s management style is to think big, but to also underestimate the risks in hopes of a big return.
Robert A. G. Monks, a Republican and an investor, was intrigued by the “guy with a little chutzpah from away who proved that he could” exploit the recreation potential hidden in Maine’s western mountains.
“It’s a riches to rags story,” said Monks, a losing Republican Senate candidate in the 1972 and 1996 primaries. He is also a well-known advocate for shareholder rights in public companies.
“I would never have invested in a company like that,” said Monks. “You would never put money in a company that gives you a financial return based only on a two- or three- month season.”
Otten recalled, “The state of Maine was crying out to be marketed, and put on a steady footing to succeed,” adding that during some of the early years as the owner of Sunday River, “we hung on by our teeth.”When he began planning the expansion, the investment banker “Bear Stearns came calling, and I had a meeting with their CEO, Ace Greenberg,” Otten said. “There was intense competition among the bankers to help us take the company public, to launch an IPO, or initial public offering of stock.”
“Everybody wanted in on the deal,” he said. “We took at the time what our bankers said was a reasonable amount of risk and debt to take the company forward.”
Phelps Hoyt, a high-yield bonds analyst in Des Moines, Iowa, said Otten was a strong leader who marketed his company effectively to eager financiers.
“We allowed him to be too aggressive in financing a business that had its ups and downs. The ski business is part entertainment and part mountain resort sales and both of these are vulnerable, both to the weather and to the economic downturn,“ Hoyt said.
Does any of this sound familiar? It should if you’ve been paying attention. When Otten left American Skiing Company he left the company with $400 million of debt and many promises unfulfilled. Otten is making the same type of big promises to the people in Coos County; the legislature; the Business Finance Authority and of course Governor Hassan. Yet his record isn’t one that can hold its own weight.
Essentially, Otten can only get the financing he needs from a private lender if the state (aka taxpayers) act as “guarantors”. He couldn’t do it on his own nor could Otten get enough private investors to invest and neither could the current owners Dan Degesse or Dan Hebert. This is another new twist in the Balsams Boondoggle that shines some light on why lobbying for Senate Bill 30 has been so intense and without much opposition. There have been so many backroom deals involving the Balsams that no one will probably ever know the whole truth. Indeed this is probably one of the biggest boondoggles in the history of New Hampshire.
