The pending sale of the Trescott‑based Cobscook Bay Company's intellectual and equipment assets to Craig's All Natural of New Hampshire for the sum of $10,000 was not the news the Washington County commissioners hoped to hear from Sunrise County Economic Council (SCEC) Executive Director Charles Rudelitch at their January 8 meeting.      "Wow," said Chair Chris Gardner in dismay. While the commissioners tabled their decision to take any action until they learned more, at a special meeting held on January 16 they voted in favor of the sale.
     The sale will allow Craig's All Natural to build on the Maine Fresh brand of seafood pies, which was the hallmark product of the seafood pie company. Craig Rief, CEO of Craig's All Natural, explains that he had been working with the pie company for over a year. "I've made a significant investment in the company, so I want to see it [the brand] continue." He adds that it was an unfortunate circumstance that the pie company had amassed so much debt.
     Rief utilizes a triple bottom‑line concept to run his company with an emphasis on people, planet and project, says Cobscook Bay Company board President Alan Furth. Rief says the main objective of buying the assets is to "continue the mission Alan started six years ago. The goal is to build that out." The mission includes utilizing local seafood from local suppliers, which Rief says he will continue as the time of year and seafood availability allows. "It's an important way to support people and resources," he explains of his business model. Craig's has facilities located in New Hampshire, Massachusetts, Maine and New Brunswick and sells its products internationally.
     Over $1 million was put into the Cobscook Bay Company from a combination of grants and loans. It was launched in 2010 with the Maine Fresh brand of seafood pies as the brainchild of Furth, who is also the executive director of the nonprofit Cobscook Community Learning Center (CCLC), and others as a way for the nonprofit to use its connections and 501c3 status to help develop a for‑profit business that would utilize local resources, support local job creation and eventually help support the nonprofit's social mission through a profit sharing mechanism. Over the course of its lifespan, the pie company received over $500,000 in grants, $250,000 in first tier loans and $300,000 in second tier loans.
     A joint loan mitigation strategy was coordinated between the Cobscook Bay Company and its second-tier lenders: SCEC as the manager of the Unorganized Territories' tax increment financing (TIF) program with a $50,000 loan, Coastal Enterprises Inc. (CEI) with a $100,000 loan and the Finance Authority of Maine (FAME) with a $150,000 loan. The first-tier lender, Bar Harbor Bank & Trust, is owed about $250,000. The numbers owed are not exact because the amount of interest and fees collecting on the principal has not been finalized, explains Rudelitch. Among the grants issued to the company were $125,000 in TIF funds.
     Bar Harbor Bank & Trust came up with the $10,000 in valuation for the assets, Rudelitch told the commissioners. The amount was questioned by Gardner and his fellow commissioners, John Crowley and Vinton Cassidy. "I would want to know how Bar Harbor Bank & Trust came to that number," says Gardner. The TIF Loan Committee was surprised at the low amount as well, added Rudelitch, but felt that the bank had a better understanding of how value was assigned to intellectual property, in this case the brand and recipes. "The bank has agreed to this? It seems like a lot for an awful little," Gardner stated. At stake is whether second-tier lenders such as the county will be able to collect on their loans through collateral positions. "Would the ability of recovery be nil?" Gardner asked about the monies owed to the county.
     In an interview, Rudelitch explains that there are several other assets in place for collateral for second-tier lenders. "There is limited collateral for a certain dollar amount, plus a few unlimited personal guarantees and an organization guarantee." However, the real value of the guarantees and how much could be used to repay what percentage of second-tier loans could not be determined unless or until true market value was determined through settlement, he explains.
     As Cobscook Bay Company board president, Furth explains in a separate interview that he has been working with Craig's All Natural as a partner for over one and one‑half years in efforts to make the Maine Fresh operation profitable and successful. "The sale allows for the opportunity for Maine Fresh to be resurrected under new ownership." He adds, "Craig's has the opportunity to build the brand back up." Rief anticipates the introduction of additional seafood products that will complement the Maine Fresh brand.
     The news of the sale figures had the commissioners questioning whether the TIF Loan Committee needed to revisit how it secures collateral for loans. Gardner said, "The loan committee recommended the original loan, and everyone felt secure about the security measures put in place." Rudelitch explains that the committee is learning. "We have experienced bankers on our committee," he says, adding, "What we learned here will inform how we write loans in the future."
     After the commissioners held an executive session on January 16 with SCEC staff and Furth, Gardner noted that the commissioners were faced with the task of voting on "whether to sign off as second lenders for the sale of $10,000 to Craig's All Natural." He commented that CEI and FAME agreed to the sale. In a separate interview, Gardner explains that the commissioners and other second-tier lenders hope that the sale will allow for the continued role of local seafood product suppliers in Craig's All Natural food offerings.
     The sale means that there is the potential for default on the loan amounts still outstanding to the second-tier lenders. "They have advised us that they don't have the means to pay the loan," Gardner explains. "However, we have collateral interest [of property and personal guarantees] from those involved in the Cobscook Bay Company." In terms of the concern about repayment to guarantors, of which the CCLC is one, Furth adds, "The board and I are taking stock, and the conversation is in process."
     Gardner adds, "One of our concerns is that the Cobscook Bay Company and the CCLC were connected. We certainly don't want to see negative impacts on the CCLC. This is why the county wants to take all levels of care" when looking at the loan's collateral and the potential of loan default. The UT TIF program issued a $100,000 grant payable over three years to the CCLC in 2010 for its Heartwood Lodge project. Gardner adds that it's the only TIF loan in potential default that the commissioners have run into. The TIF program had also issued grants to the pie company of $50,000 in 2011 and $75,000 in 2012. "It was something we really wanted to believe in" with the value‑added development of local seafood products and job creation, Gardner says. However, he also notes that the commissioners have charged the TIF Loan Committee to reexamine the collateral structure. While a default on a TIF loan will not impact UT taxpayers directly because the funds come from a reinvestment fund, it does mean that those funds defaulted on would no longer be available for investment in the UT TIF program.