The U.S. Department of Housing and Urban Development (HUD) has approved a $15 million loan guarantee to the Commonwealth of Pennsylvania and a $5 million loan guarantee to Washington County, Pa., to help 84 Lumber Co. pay off the remains of a crushing $195 million, 18 percent interest loan.
The federal assistance, granted under the Section 108 Loan Guarantee Program, is expected to allow 84 Lumber to create and keep more than 422 jobs over the next three years in Pennsylvania, a HUD statement said. The decision was made by HUD on Dec. 21, but 84 Lumber reported it only today.
84 Lumber, the No. 5 company on the ProSales 100 with sales of $1.35 billion in 2009 from more than 275 locations, had been seeking the federal loans for at least six months to extinguish the final $55 million of a $195 million loan secured in April 2008 from Cerberus Capital Management. Along with having to pay 18 percent interest, the loan's terms also required that any revenue generated from the sale of 84's properties had to be applied to the loan. In contrast, the federal loans require interest-only payments during the first two years and the principal will be amortized over 15 years.
The $15 million dollar loan to the Commonwealth will be passed on to Fayette County, which will then pass it on to the real estate ownership division of 84 Lumber. The LBM operation then plans to pay off the rest of the $55 million due with a combination of the federal money, a new bank loan, proceeds from more property sales, and possibly some direct investment by 84 president Maggie Hardy Magerko.
Magerko, in a letter written in August as Fayette County's commissioners were considering the loan request, noted the company has closed more than 200 locations, cut staff by nearly two-thirds from its peak of 10,000 workers, and sold real estate assets in the midst of "the worst real estate market in history." And now comes winter, a time when 84 experiences great pressure on its liquidity, she wrote then.
"Therefore, it is critical to restructure our debt and secure the HUD Section 108 financing, along with outside financing to eliminate the burdensome terms of the existing real estate term debt," her letter continued. "With the HUD Section 108 loan and restructuring of our real estate term debt, 84 Lumber Company is confident of our long term viability and believes that the HUD Section 108 loan will clearly save jobs and in the recovery of the housing industry will provide us the ability to create new jobs."
84's $1.35 billion in sales last year put it sixth on the latest ProSales 100 list of top LBM operations. A merger higher up the list has since moved it to fifth place. (See updated list.) At the start of 2010 it had just over 300 locations and 4,000 employees; it now has about 280 locations.
Brendan Rimetz is assistant editor of ProSales magazine.