Ceatech renews
loan questThe money-losing Kauai shrimp
farming operation is making another
attempt to secure state funds
Struggling Kauai shrimp farmer Ceatech USA Inc. is again butting heads with the Hawaii Department of Agriculture over a proposed state loan, and the dispute is headed before the Board of Agriculture this morning.
Ceatech wants a $1.8 million loan, smaller than the $4.5 million sought by the firm two years ago, but the staff of the Agriculture Department is recommending that Ceatech get only $1 million.
Based on information provided by Ceatech, the staff has concluded $1 million would be more than enough to help the company break even. Also, the state wants a full guarantee from Ceatech's shareholders, until the company can consistently service all of its debt. Ceatech has proposed guaranteeing half of the $1.8 million.
Ceatech has traded jabs with the Agriculture Department over the loan in the past, and has accused a state administrator, now retired, of being biased against the company.
During its 8-year life, Ceatech has lost a total of $10.7 million, which has been financed by Ceatech's shareholders and a $3 million loan from the Bank of America, issued in 1998 and due in 2007.
A year ago, Bank of America told Ceatech it was technically not complying with the terms of its loan. In October, the Bank of America informally agreed to a moratorium on payment of principal and interest, Ceatech said in its most recent annual report. Ceatech was still not in compliance with the loan terms as of April 30, when the publicly held company filed its annual report with the Securities & Exchange Commission. Ceatech owes Bank of America $2.1 million.
In September, Ceatech's chief financial officer, Ed Foley, told the Star-Bulletin, "We have a financial crisis," adding, "Our prospects don't look good if we don't attract capital." Foley did not respond to two phone messages seeking comment this week.
Boosting production
In its last fiscal year, Ceatech lost $3.2 million on $2.8 million in sales, nearly doubling its loss of $1.65 million in the previous year. Sales increased from $2.6 million.Ceatech said losses increased at the gross margin level in part because of decreased production efficiency. Ceatech grows shrimp in land-locked ponds, and not all 40 of its ponds were in production for the entire year. Those ponds that were in production were often stocked with a lower density of juvenile shrimp.
Also, Ceatech sold smaller-sized frozen shrimp at a discount to generate cash. The situation is expected to improve, Ceatech said in April. The company has taken on $1 million from the sale of stock.
Ceatech says it needs a state loan to increase production by adding as many as 20 more shrimp ponds.
State loan program
The state Legislature authorized $5 million in loans in 2001 ostensibly to replace jobs lost in the closure of Kauai sugar company Amfac, though the state money was tailored to help Ceatech. The law provides for loans at a below-market interest rate of 3 percent, fixed.Ceatech applied for most of the funds in 2001, but faced a competing bid from Kauai's last remaining sugar grower, Gay & Robinson Inc.
The situation took a turn when the administrator of the Agriculture Department's loan division, Doreen Shishido, rejected Ceatech's application because she said the company was too big of a risk for such a large loan. Ceatech said that Shishido was predisposed against the company.
The state Board of Agriculture last year overrode Shishido's recommendation and approved a loan to Ceatech, but reduced the amount to $2.5 million.
Gay & Robinson, which had sought $4 million, got a reduced loan of $1.8 million, which it used to plant more acres of sugar on Kauai.
Ceatech received an additional loan commitment of $2.3 million from Central Pacific Bank.
But Ceatech lost its loan commitments because of problems with the Bank of America loan. To get the state loan, Ceatech needed to get the Central Pacific loan. To get the Central Pacific loan, Ceatech needed a guarantee from U.S. Department of Agriculture. But the federal department had already guaranteed the Bank of America loan, and the collateral for the Central Pacific loan would have overlapped with the Bank of America loan, said Steve Chapman, business programs director for the USDA in Hilo.
"We can't just enter into agreement with another bank on another application if it impacts some of the collateral on the existing loan," Chapman said yesterday.
Ceatech's loan commitments expired in February 2002. Five months later, Ceatech learned it was not complying with the Bank of America loan.
Earlier this week, the U.S. Department of Agriculture received a proposal by Ceatech to restructure the Bank of America loan. The federal government has begun to review the request, Chapman said.
Regression
Meanwhile, Ceatech went back to the state Department of Agriculture with the same $2.5 million loan request. Ceatech still wants to build between 14 and 20 more ponds. Denis Kam, a former Hawaii National Bank executive who is working on behalf of the state, told Ceatech it had regressed and should be financed by equity. Ceatech reduced its request to $1.8 million, but the state and Kam balked.The state believes Ceatech can build 14 more ponds with a $1 million state loan, and that a total of 54 ponds should generate enough cash to service Ceatech's debts. Kam, who once supported Ceatech's application for $4.5 million, has agreed with the state that $1 million is sufficient. Ceatech wants $1.8 million.
The next move is up to the state Board of Agriculture, which has a new chairwoman, Sandra Kunimoto, who replaced James Nakatani.
Powerful friends
Ceatech, a $2.6 million Colorado corporation, is largely owned by its directors and executives, as well as the nonprofit union fund Unity House Inc. Ceatech's stock has lost 95 percent of its value since it began trading publicly in 1997 at $3.25 a share. The stock has been trading at 15 cents a share, an all-time low, since May 13.Ceatech has received considerable backing for its state loan application, and has produced letters of support from U.S. Sen. Dan Inouye, as well as Kauai Mayor Bryan J. Baptiste, Kauai state Sen. Gary L. Hooser and members of the Kauai County Council.