The Spinning Yarn of Corporate Welfare: Part III
Atlantic Yarns: bottomless-pit filing for bankruptcy?
People who read this blog on a regular basis (all two - thx mom) know all too well that I am no big fan of the practice of corporate welfare. One of the main reasons for this is that corporate welfare decisions are often made by individuals with absolutely no experience in private investment wherein goals are usually set by politicians and unaccountable bureaucrats. For example, to ensure that taxpayer-financed projects meet regional and political criteria, decisions are often made without taking into account the realities of the surrounding economic climate or the industry involved.In other words, politically driven investments are motivated by political imperatives and the number one factor in these decisions is the preoccupation with "how many jobs are created or saved" regardless of profitability or sustainability. There is no better example of this than the recent response by BNB Minister Greg Byrne to the news that Atlantic Yarns and Atlantic Fine Yarns have 'filed for protection from their creditors and are one step closer to bankruptcy' where he said, "Ultimately we'd like to see the company survive and provide jobs". (For more on Atlantic Fine Yarns see here and here)
It is obvious that the owner of these two textile companies is now so adept at securing government money that he and his company have totally lost sight of their core function: the creation of wealth and maximization of product/service value.
In essence, because BNB has been so generous and irresponsible with our tax dollars over the years when it comes to offering up these forgivable loans and guarantees to Atlantic Yarns and Atlantic Fine Yarns (to the tune of $37 million and $41.5 million respectively) most of the boardroom in that company are preoccupied with being lobbyists for government subsidies rather than successful business entrepreneurs. Let's hope Byrne has some commonsense and doesn't put taxpayers on the hook once again in order to prop up these fledgling textile industry in a slow growth region just for the sake of getting his party elected up there.
There has got to be better investments out there.
16 Comments:
This is the eventual end when government tries to prop up a failing business. The first couple million can be justified as protecting jobs. The next few millions are needed because you don't want the first subsidy to be for nought. The third cheque keeps the second from being wasted, and so on.
Eventually, even with all the government money, the failing business fails. Meanwhile, small business taxes have been increased, ensuring that true entrepreneurs and actually successful enterprise subsidizes Big Corporate Welfare.
The same thing happened in NS with Sydney Steel, and my buddy's father had an interesting point: you could have paid each steel mill employee a million dollars, and still saved the provincial government a ton of money. Why didn't Business NB cut a cheque for $200,000 to each of the workers, and walk away from Atlantic Yarns years ago?
It happens in each one of our call centres as soon as the "forgivable loans" run out. When the government handout dries up, the shysters skip town as fast as they can. Regional Economic Development in New Brunswick has failed, but we'll keep throwing money at it to justify all the money we've already spent. Maybe that big yarn deal we've been hearing about with Peru will pan out, and NB will get back halfpennies on the dollar in this deal.
When Hamm was premier of Nova Scotia, he saw value in government investment of industry.
Think: Research in Motion.
Although, the first point of contact for businesses and organizations is a public-private business development agency known as NSBI. A little different than the politically motivated BNB.
Rob: you're right. However, this practice is so deeply rooted in New Brunswick that it will be difficult to get our province out of this mess and create a more even playing field for all businesses.
I've heard skeptics of Bernard Lord's small business tax cuts make the claim that it was unsuccessful because of the failure rate of small business in NB during his tenure.
But what they failed to add was that his government engaged in the practice of corporate welfare as well making it difficult for SMEs to succeed.
In other words, as long as corporate welfare is alive and well, credit and capital will be diverted fom successful firms to less successful politically connected firms. And even worse, firms that do not receive government assistance subsidize their government-supported competitiors through their corporate taxes. Thus, creating a very uneven playing field for business.
bill: remember RIM in Halifax is strictly focused on trouble shooting customer related problems (a call-centre), not product development. Albeit, it is a high end one. The 1,200 jobs over next 5 years announced for Nova Scotia are not much different than the 200 or so jobs which Moneris Solutions, North America's leading processor of debit and credit card payment processing for businesses, announced a few years back by Bernard Lord's government in NB.
From what I recollect, they are both asking for yearly assistance for as long as they make their stay in New Brunswick. As rob said, "when the government handout dries up, the shysters skip town as fast as they can." This goes for profit driven companies like Moneris and RIM as well.
That is why I despise the practice because taxpayers are always on the hook whether or not the company they invest in fails or succeeds.
Rob is right. They should pay out the salaries and be done with it. Because if it is allowed to continue, it will cost every working New Brunswicker the equivalent of two weeks' pay every year. The price we have to pay with having so many companies on the dole in this province.
I couldn't agree more with you nbt. I live in Northern New Brunswick, and I have seen more taxpayer money wasted in the name of economic development that it makes me want to puke.
I see very capable business people not make a move unless they check out the government funding. I have seen others get shown the door because they don't fit the "sector" of the day.
Money to beer brewers, and Ted Rogers for crying out loud, who has built a very profitable business, and we offer incentives....gives me high blood pressure.
I see Flaherty is calling on all the provinces to match his plan so that Canadian businesses would face a combined tax burden of 25 per cent:
"Our government is moving to 15 per cent. If the provinces move as well, a 25 per cent combined rate will be a powerful brand for Canada globally."
I wonder if Victor Boudreau has had a change of heart on his stance of higher taxes generate more revenue, especially when the surplus is higher than projected?
Keep in mind that this is how the economy operates, so stopping this essentially means killing the economy. However, first of all, we should point out we dont have all the details. THere are lots of millions, but we don't know whether 'forgiveable loan' means that it all has actually been forgiven.
We also dont' know whether the board spends all their time lobbying or not. However, think of it this way, with NO corporate welfare there would be no resource jobs, which are essentially the backbone of the economy, there would be very little high tech investment, the same is true of that.
In short, you either have public employees and retail store workers and thats it. So you can see why people choose a different alternative. Keep in mind also that not everybody creates companies to 'create wealth'. My first company was started because I saw an opening in a market and had many friends who were unemployed. I owned the company but most of the time I made far less than the employees did.
And keep in mind that RIM also got some cash as well, it wasn't ALL in tax rebates. Check out http://hawkeyenews.blogspot.com for a much different perspective on Nova Scotia's investment arm.
WHen the alternative to government money is no jobs, the choice seems clear.
The title should read “BNB and New Brunswick Tax Payers gets a spin by the Spinning mills”
I am consultant in the manufacturing sector (specializing in Textiles and Garment Making) and see a lot on companies struggling and closing down. They apply for financial assistant and BNB refused them for peanuts loans compared the ones dished out to these firms ($80), plus don’t forget Sunshine Mills ($30M). Our investment business analyst at Business New Brunswick needs to be accountable. This is farce to see our money blown away like this.
I have commented before, I feel that if I have $100M to invest in stocks, I would hire the best investment broker and make sure that my (ROI) return on investment is in good hands. If my investment broker doesn't meet my objectives or looses money, I either change stocks or change stockbroker. In other words if a stock broker is has a proven track record and he or she is accountable, I will have a proper ROI on my investment.
However, if the stock broker cannot due a proper due diligence (DD), they either loss their business or the person in charge and their staff gets fired! Even more so, if the stock broker is negligence in doing their due diligence, they are often brought to the courts for liability and non-professionalism.
By reading what is going on at BNB, It looks like that they don’t know who is in charge. It is none sense when you see media release from BNB and the Premier stating information that is completely of the map. Blaming on import duties and blaming the federal government for not pursuing more bilateral trade with South American or the Caribbean. If the analyst at Business New Brunswick wishes to get information, they should contact their counterpart in Ottawa so they could get their story in-line. They (Politician) give out information that is completely of the mark. Textiles and textiles products in North America has been driven by global markets since the early days of Ronald Reagan, when the US initiate the Caribbean Trade Initiative Then came NAFTA, and foremost NAFTA with Mexico, and the list goes on.
The statement made by Minister Byrne in July this year: "We obviously need to stabilize the industry and maintain the jobs, and it is a significant employer in the north of the province,” proves that he was misinformed by his analysis at BNB our he is stating to the New Brunswick Taxpayers that “New Brunswick Government will what it takes to keep the jobs and get me re-elected statement the next election because I am doing a good job”
When a company borrows $80M, they have to have a business plan that has to be analyzed with due diligence. How many years that they require to pay off the loan? Five, ten, fifteen years? What are the projected gross revenues for the next five, ten years? These basic information questions and that are commonly asked and answered by professional financial institutions and business analyst for loan applications. Did they forget cash flow projections too?
If the company forecasts Earnings before Income Tax, Depreciation and Amortization (EBIDA) over $2 million per year, it would take the company 40 years to pay off the loan. This is not they way to the “self sufficiency” report that the premier is talking about these days. With the way they are going, it should set back the target date to by a couple years!!!
The investment and business analyst from Business New Brunswick needs to be accountable. This is farce to see our money blown away like this. They (BNB) are investing our hard earned tax money into ventures that even the regular banks, ACOA or BDC won’t even touch. They have learned from past experiences, and yet BNB is still lending them money (interest free) on these white elephant projects. We call this in the trade “The lights are on and nobody’s home syndrome”. The investment and business analyst the province at Business New Brunswick needs to be accountable. This is farce to see our money blown away like this.
The investment and business analyst the province at Business New Brunswick needs to be accountable. This is farce to see our money blown away like this. If these two companies files for bankruptcy, the tax payer of New Brunswick needs answers. Remember the emulsion fiasco at NBPOWER. A Public Inquiry should be call to find out what really happened with our money.
Consultant and NB Taxper
BNB = BYRNE NO BRAINS/BALLS
That was a good post, very interesting information. Since I posted on that theme at another blog I'd be interested in knowing what companies were refused for their peanuts loan-and what type of work they do. This company makes fabrics for home furnishings, so its doubtful they are direct competitors.
However, again, this is how the economy works. Are you going to subsidize some small firms, or very large ones which provide a lot of jobs in an economically challenged part of the province.
However, the company, from documents I've read, imports its cotton from Egypt, India and Pakistan, NOT the US or Mexico. So it pays import duties on its cotton, but then has no duty applied on most of its product. Mind you, on one form they indicate that western europe is their primary market.
This would have been a good example to publicize and talk about value added products, because apparantly the cotton was shipped in, was woven into a fabric, then shipped out elsewhere for the fabric to be used. They state that the fabric is used for home furnishings, its too bad some home furnishings couldn't have been made there.
However, for NBT it does get worse. HRDC, through its 'job fund', also gave them a handout of $2.3 million, and $77,000 came from the federal government. But again, you can go to the HRDC site and see how much money is handed out in their 'job fund' to see that a big part of most industries is getting money from the government.
Also, this company did set up a sales office in Mississauga Ontario and they have received the following grants from Industry Canada under “Atlantic Yarns Inc”. The posting from Industry Canada are:
2006-03-01 $100.000.00
2006-03-24 $ 94.000.00
2006-06-29 $ 60,825.00
2006-06-30 $ 60,825.00
2006-08-29 $ 34,083.00
2007-01-29 $ 77,995.00
2007-02-12 $ 35,903.00
2007-06-25 $ 58.248.00
The total for the grants is $521,879
Normally these grants are available for companies that are developing new products and process in their textiles plants. They are rarely announced to the media but they have to be disclosed due to that fact that Harper decided to publish these results since the Gomery report.
You can find this information on Industry Canada Web Site under Disclosure of Grant and Contribution Awards Over $25 000 link : http://www.ic.gc.ca/app/ic/pdgc/lstQrtrs.do?lang=eng
No word in the media that they are developing new products or process, just hands out. But maybe the analysts and investment bureaucrats forgot to mention this to the Minister of BNB that they have received financial assistance from Ottawa.
Maybe someone should mention this to the Premier, and tell them that Ottawa is trying to help them by dishing out these grants to their Mississauga address Sales Office and small warehousing operations.
Also; if you can search the web, you could also find under “ATLANTIC YARNS INC.” not ATLANTIC FINE YARNS INC” : (They are playing the name game)
Press Release : 10/24/2005
“Integrated Asset Management Corp. (TSXV:IAM) (“IAM”) and its private corporate debt group, Integrated Private Debt Corp.(“IPD”) announced today that IPD has provided a $5 million long-term loan to Atlantic Yarns Inc. This financing, which is in addition to a $24 million financing previously arranged and managed by IPD, will be used to augment working capital
.
IPD provides funding from and manages the $600 million Integrated Private Debt Fund LP. The fund is managed by IPD on behalf of a number of pension funds and other institutional investors. IPD offers fixed rate term loans to mid-market companies for such purposes as refinancing existing debt, business expansion and project finance. Loan origination, underwriting, structuring, management and administration are undertaken by IPD.
Atlantic Yarns Inc., owned by the Sunflag Group headquartered in London, England, operates from a recently constructed state-of the-art 380,000 square foot plant in northern New Brunswick. The Atlantic facility is technologically one of the most modern such plants operating in North America producing approximately 80 metric tons per day of highest quality cotton yarn using the open-end yarn spinning method.
IAM is Canada's leading alternative asset management company, with approximately $3 billion in assets and commitments under management in private debt, private equity, managed futures, real estate and hedge funds.
And Press Release in September 30, 2003.
“Integrated Asset Management Corp. (TSXV:IAM) and its private debt group, First Treasury Corporation, announced today that it has provided a $ 24 million long-term loan to Atlantic Yarns Inc.
Atlantic Yarns Inc., owned by the Sunflag Group, operates from a newly constructed state-of-the-art 380,000 square foot plant in northern New Brunswick, producing approximately 80 metric tons per day of highest quality cotton yarn using the open-end yarn spinning method.
This financing, provided by First Treasury’s syndicate of financial institutions, will be used to consolidate balance sheet debt, redeem preferred shares and provide working capital.
The loan was arranged and structured by First Treasury, a member of the Integrated Asset Management group of companies. For over 16 years, First Treasury has been Canada’s leading independent underwriter and manager of senior secured private debt.
IAM is Canada’s premier alternative asset manager, with over $ 1.4 billion in assets under management in private equity, private debt, managed futures, real estate and hedge funds.
The TSX Venture Exchange has not reviewed and does not accept responsibility fort he adequacy or accuracy of this release.”
Now that this is also public knowledge due to the public company policy, what else they are hiding?
BNB Loans $80,000,000
Outside Financing $30,000,000
Total Loans: $110,000,000
Grants :
HR $2,200,000
Industry Canada: $521,879
Total received financing received over $114,000,000.: (This doesn’t include the interest on these loans or the hands out from BNB and other New Brunswick Departments, plus all of our Tax money to pay the bureaucrats to manage these loans and try to find a solution to help save the jobs.). Is this what they call “Self Sufficiency”. While a lot of effort is put into this project, the SME business are suffering because of their decisions to pursue the quick fix solutions by giving them loans and telling to SME of NB that the funds are not there for their projects or expansions.
In all for 350 jobs that equals $325,000 per jobs. What is the magic number to save a job?
Under these financial conditions no company can survive, especially in the textiles industry. This indicates that the Bureaucrats in Fredericton are playing the political game and they don’t know how to get out hole. It just keeps getting deeper.
I have predicted to my textiles colleagues that if the company survives till December 2007, it will be a miracle. I guest I wasn’t wrong.
Frustrated Consultant
Mike,
These plants do not produce fabrics, they produce thread for the fabric mills.
The only value added they are doing at these plants is that they buying unspound cotton yarns and spinning them into fine yarns and finishing it with color.
The process is fully automated and the labour in it is mostly machine operators and material handling.
They equipment could be used all over the world, and with little training, the company could set up any ware.
It is quite clear that Atlantic Yarns needed financing (free) to increase their spinning capacity. And with the bureaucrats (Liberal and Conservative) they were convinced that they had a good thing. It started in the late 90 with the liberals, then the conservative and now the liberals. They are in a deep hole and they don’t know how to get out
They are competing on world markets, and I bet when this is all over, the equipment will be sold at a fraction of the price and transferred to third world countries so they could pay their employees at $1 per day.
Anyway, did any one mention who is the cotton supplier? May be they own it to.
Frustrated Consultant
Here's the problem: this is an international company with 'state of the art' production facilities. What it illustrates is what is the price of foreign investment setting up in a disadvantaged economy?
However, other companies are not that different. The theory is that just with low taxes lots of these companies will come flocking. This shows that this is not true.
Before we go further, IF it is owned by the Sun Group then they do indeed own a cotton export company out of the middle east. What I was referring to before was that the Sunshine group, which makes fabrics, was looking for a tariff reduction, because THIS company couldn't or wouldn't supply them.
There was a bit of a tip off there, because Sunshine was stating that Atlantic wouldn't agree to their sales terms (payment in 30 days), but also that they couldn't provide the specific type of yarn they needed, although Atlantic claimed they could provide an equivalent, but the tariff review board sided with Sunshine and stated the tariff reduction should be enacted because Sunshine couldn't find the yarn they were looking for in Canada.
At another site they claim that sales from Atlantic were in the 10-50 million range. Which means that IF that meant a profit of, say, 10-15 million then that much debt isn't out of line. So long as the good times keep coming.
But that brings us back to a comparison with energy over at Davids blog. If the company sunk that much money in, then the facilities COULD have been used by the population. Look at it this way, here's a hypothetical scenario:
Within NB you have:
machining tools which make screws
lots of wood
fabric manufacturers
So with those three sources worker owned, or publicly owned, businesses that make furniture would flourish. They'd be able to sell all across canada, even the US and compete with China because there would be little shipping cost.
The companies that I suspect couldn't get the loans were those who wanted to DO something with the yarn, not those wanting to make yarn, which requires expensive equipment and is a huge undertaking.
THose are issues that it would be interesting to get more information on from our frustrated consultant above-namely some good links on the state of the industry in the province, what companies are setting up or attempting to, etc.
We know about the Caissie and about the yarn, how many others are out there? Personally, I have no problem with that kind of investment, but as mentioned here and at Davids, you need to have a close eye and do it in industries which are viable.
It's almost as bad as their multi-million dollar subsidy for Atcon Group Inc to produce steel for the NWT bridge. Yet, another bad business deal caught up in legal difficulties.
http://www.cbc.ca/canada/new-brunswick/story/2007/09/27/nb-bridge.html?ref=r
Mike;
I am willing to name some projects that were rejected, but for now, I will be silent due to the fact that BNB and the GOV NB is supposively changing the way they do business.
This is yet to been seen.
The problem with BNB, is that they have outdated bureaucrates that in some time in their carreers, were outstanding in their field of expertise.
However, when you see a sector analyst for the textile trade this is trained in the Food industry, wouldn't you asked youself some questions?
Nevertheless, the quick fix these days is just throw money at the project, and wait to see if it fly's
One prime example is the project in Kent County that was anouced earlier this month (Cranberry processing Plant).
This project is to established a Cranberry Cleaning Station. The value added is only to clean berries.
The total cost of the project $1,136,000
ACOA = $383,520 (loan Interest Free)
BNB = 181,000 (Loan or Grant) Yet to be deterimed
Miramichi Regional Development = $225,000 (Loan or Grant)
Company: $346,480
They also stated that it will create 8 Jobs.
Not lets look at this.
The company is owned by a group of farmers or investors that owns the cranberry fields.
They have invested 30% on the investment.
The rest is government financing and grants.
They state that they are creating 8 jobs.
STOP!
Cranberries are only processed from Mid-October to End on November or Early December.
FYI: Once the cranberry field are flooded, the farmer has 48 hours to process them and store them in a freezer or the quality of the berries are starting to spoil. Also, they have to be processed before the freezing weather.
Job Creation : 8 employees
Duration of Work: 8 weeks
Weeks per year = 52
Full time job converstion:
1.23
Total Investment $1,136,000
$/Jobs invesment: $923,577per job
I am wondering, what is the magic number for BNB to create a full time job.
It is getting pretty close to the $1M/JOB
Frustrated Consultant.
deteriate
Hey frustrated consultant, thx for your insightful comments.
If you have more of those excellent examples, feel free to email them to: nbtaxpayers@gmail.com
We're always interested in hearing how our tax dollars are used.
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