Feds Give Lumber Mill A Hand Public Loans To Help Save Vaagen Bros. And Stevens County Jobs

Colville’s Vaagen Bros. Lumber is to receive a Chrysler-style bailout with public loans.

Company and community leaders don’t like the comparison. But they hope multimillion-dollar public loans to the family-owned sawmill company will save industrial jobs in the same way a $1.5 billion federal loan package to Chrysler Corp. did in 1980.

Working through state and local agencies, including the city of Colville, the federal government would extend up to $7.75 million worth of credit to Vaagen Bros. early next year. The company says it probably will need only about $1.35 million of the 10- to 15-year loans to restructure its debt and continue operating.

Vaagen’s Administrative Vice President Bob Heater acknowledges the irony of a company that has been highly critical of federal timber policies accepting a helping hand from the government. But he said federal policies help generate the need for assistance programs.

Colville Mayor Duane Scott put it bluntly: “Apparently, Vaagen has exhausted its access to other money because of the situation created by the environmentalists and the obstructionists.”

Uncertainty about the future of the timber industry has made banks “very reluctant” to provide working capital to companies like Vaagen Bros., said Brent Grening, executive director of the Trico Economic Development District. Trico serves Stevens, Pend Oreille and Ferry counties.

Grening declined to provide details of Vaagen’s difficulties but said “it’s a fair inference” that the company might fold without assistance.

“Any small mill out here that is relying on timber from the federal forests is at risk,” Grening said.

Although small in comparison to industry giants such as Boise Cascade, Louisiana-Pacific and Weyerhaeuser, Vaagen Bros. was listed as the 70th-largest company in the state with annual sales of $90 million to $100 million, according to the May issue of Washington CEO magazine.

Vaagen Bros. is the third-largest private employer in Stevens County and the largest in Colville. Its loss would be staggering.

Scott noted that Vaagen Bros. closed its mill at Ione, in Pend Oreille County, this summer and that the company’s only other mill, at Republic in Ferry County, is down to one shift of 100 workers.

“What would be next?” he said.

Scott knows too well that the 250 jobs at the Colville mill and the estimated 625 other jobs the mill supports go a long way toward feeding the city’s 4,580 residents.

“I think every community has the responsibility to protect its economic livelihood, and that’s what you’re seeing Colville do,” Grening said.

The Colville City Council voted unanimously Sept. 5 to have the city serve as a conduit for a $700,000 portion of the loan package being assembled for Vaagen Bros.

Federal rules require a local government to administer the loan, which would be passed through the state Department of Community Development.

Grening and Scott emphasized that Colville’s credit won’t be affected and the city won’t be on the hook if Vaagen fails to pay. That’s not true for Trico, which is lending $150,000 from its federally bank-rolled revolving loan fund. “So you better believe we looked carefully at it,” Grening said.

He said his look at Vaagen’s books convinced him the company remains an acceptable risk even if bankers have cold feet. The company would put up timberland as collateral.

Heater said the problem is that logging restrictions in national forests have U.S. timber prices at an all-time high - around $505 per thousand board feet - while Canadian mills are driving down prices for finished lumber.

Canadian mills get timber from their public forests for $100 to $200 less in U.S. funds than American companies have to pay, he said.

Finished lumber prices have tumbled from more than $500 per thousand board feet in December 1993, to $350 in December 1994 and $250 in June, Heater said. The Canadian share of the U.S. market is up from about 30 percent to almost 40 percent.

Vaagen’s problems are “serious enough,” Heater said, but he thinks the company’s operations in Republic and Colville will remain stable at current levels. The company is in no danger of bankruptcy or default, he said.

“We plan on being in the community and continuing to support the community for many years to come,” Heater said.

Although Trico can lend only to companies unable to get private financing, Heater said Vaagen Bros. doesn’t view the public financing as a last resort.

He said the first $1.35 million of the loan package may open the door to more attractive private financing.

“We are looking at some refinancing with private lending institutions, including commercial banks, and they feel a lot more secure if somebody else is involved,” Heater said.

, DataTimes ILLUSTRATION: Color photo

MEMO: This sidebar appeared with the story: LOAN PACKAGE The proposed $7.75 million public loan package for Vaagen Bros. includes: Loan guarantees totaling $6.4 million from the federal U.S. Rural Economic Community Development program (formerly the Farmers Home Administration). A $700,000 loan of U.S. Housing and Urban Development funds, passed through the state Department of Community Development and the city of Colville. A $500,000 loan from the federally funded state Timber Revolving Loan Fund. A $150,000 loan from the Trico Economic Development District, which serves Stevens, Pend Oreille and Ferry counties. All of the loan interest rates would be 9 percent except for 11.5 percent on the $6.4 million portion. The loans would be secured by timberland.