The Washington County, Pa., Redevelopment Authority has scheduled a hearing on Sept. 21 that would pave the way to consider 84 Lumber's bid to get a $5 million federal loan. The request for that loan marks the second step in 84's campaign to pay off the final quarter of a $195 million, 18% interest loan that has hobbled the LBM giant's operations.

The Sept. 21 hearing is just to examine if there's a local need for Community Development Block Grant money, Washington County director of administration Scott Fergus told ProSales today. After that, the Redevelopment Authority would be expected to meet on Oct. 2 to consider 84's request. If approved, the request then would go to the county commissioners, who at one of their October meetings would decide whether to sponsor 84's loan request.

A Sept. 1 ProSales report had suggested it was the commissioners who would make the county's first move at a meeting on Sept. 16. But it's actually the Redevelopment Authority that must act first. Once the county acts, the Commonwealth of Pennsylvania carries forward the request to the Department of Housing and Urban Development.

The $5 million Community Development Block Grant that would be awarded by the federal Department of Housing and Urban Development would be combined with a similar $15 million federal loan being championed by neighboring Fayette County, Pa., whose commissioners voted Aug. 26 to sponsor 84's request. (Story) Those $20 million in grants under HUD's Section 108 program would then be applied to the final $55 million of the $195 million loan that an arm of 84 called Pierce Hardy Limited Partnership entered into in the spring of 2008 with Cerberus Capital Management. 84 plans to pay the rest through a new private loan with Wells Fargo worth about $20 million, $10 million from property sales expected to close before the rest of the refinancing is put together, and $5 million from 84 president Maggie Hardy Magerko.

The LBM giant is particularly familiar with Washington County's board of commissioners. 84 founder Joe Hardy is a former member, and the company's headquarters in Eighty Four, Pa., is located not far from the county seat.

Given that the Section 108 loans can be repaid in 17 years and require interest-only payments for the first two years, 84 would enjoy much more financial maneuverability than it does with its current loan. Aside from the 18% interest, the Cerberus loan requires that all asset sales be used to pay down the debt and is set to expire in April 2013.

On Aug. 25, Jeff Nobers, 84's vice president of marketing and public relations warned that the company--America's fifth-biggest LBM operation--could close more stores and lay off more workers if it cannot get out from under the Cerberus loan's terms. On Aug. 26, Magerko delivered a letter to Fayette County's commissioners saying 84 has been burning through cash and, because of the Cerberus loan, hasn't been able to use asset sales to put out the fire. Aside from the Cerberus loan, 84 also has an asset-based loan (ABL), secured by 84's operating assets, that had a commitment of $340 million and funded debt in April 2008 of $191 million.

"The cash burn has effectively been subsidized by the ABL loan, a reduction in debt by reducing inventory and other short term assets, and cash infusion by me," Magerko's letter said. "Our ABL loan has certain advance rates and requires that a certain asset theshold be met prior to the loan advancing money on additional assets beyond the threshold. At this point, we do not have satisfactory cushion against this threshold, and, the only answer is to refinance the term loan, so as to allow our ongoing asset sales to be applied to the cash burn of the operating company."

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 latest ProSales 100 list.) At the start of this year it had just over 300 locations and 4,000 employees; it has about 280 locations now.

In her letter, Magerko noted the company has closed more than 200 locations, cut staff by nearly two-third staff 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 noted.

"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," she told Fayette County authorities. "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."