Tag Archives: Firefly Energy

City of Peoria, Peoria County

Firefly bankruptcy hearing date set for Sept. 9

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Last week’s “Issues Update” from the City Manager’s office has the latest on how things are progressing with the Firefly bankruptcy:

The Bankruptcy Court has set a hearing on the City’s and County’s settlement with the Bankruptcy Trustee for September 9, 2010. Negotiations continue with Electrotherm, the company from India who has expressed interest in acquiring Firefly’s assets. In order to move that negotiation forward, the City Manager and the County Administrator have executed an agreement that the City and County will not market the assets of Firefly to any other party than Electrotherm until September 14, 2010. It is anticipated that a purchase agreement will be on the City Council Agenda on September 14, 2010.

In related news, one market for the batteries in India would be to power two-wheeled scooters:

The electric two-wheeler industry in the country is struggling for survival, as manufacturers are making huge losses. …[T]he fledgling e-scooter segment has failed to join the bandwagon of the Indian automobile industry, which is on a high growth trajectory. From 60 players in the electric two-wheeler business, including small time assemblers, only 10 remain in contention now….

The dependence on imports for key components such as battery, motor and charger also pose a challenge for the industry. Major players such as Hero Electric and Electrotherm are looking at developing local battery manufacturing capabilities. [emphasis added]

How’s Electrotherm doing these days? Here’s a recent report:

Electrotherm (India) disclosed a steep drop in standalone net profit for the quarter ended June 2010. During the quarter, the profit of the company declined 27.28% to Rs 123.43 million [US$2,633,460] from Rs 169.74 million [US$3,621,514] in the same quarter previous year.

The City and County of Peoria guaranteed a bank loan of $6.6 million for Firefly Energy in 2007; the company went bankrupt in March of this year. The municipalities have been trying to mitigate their losses by selling the company’s assets.

City of Peoria, Firefly Energy, Peoria County

Firefly update: Cost to settle bankruptcy just went up a half million dollars

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On Thursday, the Peoria County Board approved a resolution to settle a lawsuit with other creditors involved in the Firefly Energy loan default. The $500,000 settlement allows the City and County to own Firefly’s intellectual property, which they can then sell free and clear to Electrotherm Ltd. of Ahmadabad, India. After the sale of the assets, the County and City will only owe the bank $2 million, so the total cost to settle the original $6.6 million loan guarantee will be $2.5 million.

The vote to approve the resolution was 15-2, with Brad Harding and Andrew Rand voting against it for unspecified reasons.

City of Galesburg, PeoriaNEXT

PeoriaNEXT incubates another government sponge

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PeoriaNEXT Innovation Center, the organization that brought you Firefly Energy, has incubated another start-up company that can’t start up without taxpayer-supplied venture capital. It’s called Intellihot, and fortunately for Peoria taxpayers, it’s getting its combined $1,015,000 in direct lending and commercial loan guarantees from the taxpayers of Galesburg.

The Galesburg City Council unanimously approved a $675,000 loan (at 3% for 10 years) plus a guarantee they would cover 20% of a $1.7 million bank loan (that works out to $340,000). The editors of the Galesburg Register-Mail are also unanimous in their approval of the council’s action. It’s not hard to see why. Intellihot promises to “create 45 jobs paying $25 an hour [in the next two years] and plans to develop a 30,000 square feet facility in the Sustainable Business Center, which is located in old Carhartt building on West Main. The company hopes to employ 144 workers here within four years.”

Intellihot is a company started by two former Caterpillar engineers. So why are they planning to manufacture their tankless water heaters in Galesburg instead of Peoria? According to Paul Gordon’s column on Sunday:

There is a facility already available in Galesburg that will be a sustainable and green incubator for manufacturing products. […]

“Finances, of course, were a very important factor, as was the skills of Galesburg workers. But having the sustainable, green manufacturing incubator ready was key because we have some time lines we have to meet. We have to get some things done to move this forward or someone else will,” [Sridhar Deivasigamani, president of the company] said.

What is this “green incubator” that Galesburg has? The Galesburg newspaper explains:

The [former Carhartt] building offers 80,000 square feet of manufacturing/warehouse space, as well as 8,000 square feet of offices. According to a news release from the [Sustainable Business Center], “Incubation services will be offered to new, green businesses at below market lease rates. Services will include receptionist, copy, fax and conference room. Staff will be available to help draft business plans and to mentor and work with new businesses.”

Carhartt is a Michigan-based manufacturer of “premium workwear” that closed its distribution center in Galesburg last August. However, instead of selling the building and abandoning Galesburg altogether, Carhartt’s majority owners (Mark and Gretchen Garth) donated the building to their family foundation, HumanLinks, and have been turning it into the Sustainable Business Center. WQAD reported in June: “Using green technology, it hopes to eventually replace some 200 jobs that were lost here.”

Bottom line, Intellihot is getting “below-market lease rates” on their manufacturing space and over $1 million in financial backing from Galesburg, and that’s why they’re going to build their product there instead of Peoria.

I wish Intellihot and the taxpayers of Galesburg the best of luck. Peoria’s foray into venture capital for another PeoriaNEXT start-up company didn’t work out so well. Perhaps Galesburg will fare better. Still, I miss the good old days when entrepreneurs used exclusively private financing to start up new companies instead of relying on public tax dollars.

City Council, City of Peoria

Firefly failure prompts City to hire outside counsel

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According to a Request for Council Action on Tuesday’s City Council agenda, “Firefly’s bankruptcy filing, and the City’s and County’s guarantee of a loan from National City (now PNC) Bank to Firefly have given rise to a complex legal situation. It has been deemed advisable to retain outside counsel with experience in this type of complex bankruptcy.”

The request asks the Council to approve hiring Thomas O’Neal of the law firm Westervelt, Johnson, Nicoll & Keller for $255 per hour. Here’s your trivia fact for the day: Tom O’Neal sought to fill a judicial vacancy on the Third District Appellate Court in 2006 after the retirement of Judge Kent Slater of Macomb, but lost the Democratic primary. He’s also been recognized by the state and county for his pro bono legal representation of the poor.

Peoria County, Peoria Journal Star

“Word on the Web” has Urich news conference video

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The Journal Star recently started a new blog based on John Sharp and Karen McDonald’s Monday column “Word on the Street.” The blog is called “Word on the Web,” and so far it has been very good. New content is added regularly, and the information is much more timely than the weekly print column. Case in point: today’s post on Peoria County Administrator Patrick Urich’s press conference. It includes video of the whole meeting, which was basically a question and answer session about Firefly flickering out. Very informative.

City of Peoria, Peoria County, Peoria Journal Star

More historic quotes about Firefly

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“In terms of company stability, Caterpillar owns 35 percent of Firefly, and Cat is a company that does its homework. This battery technology is unique and promising enough that Firefly had little trouble raising $20 million in private equity. Company officials figure 80 percent of that money is spent locally, so there’s economic spin-off.” –Journal Star Editorial Board, May 22, 2007

The Journal Star said the risk was worth taking, and endorsed the loan guarantee. I just thought this quote was notable because there’s this attitude in Peoria that if Cat invests in something, then it must be a sure thing. Obviously, Cat didn’t get as successful as it is by making a string of poor investments, but the Firefly bankruptcy does show that Cat isn’t perfect, and their investment is no substitute for municipalities doing their own due diligence. Then again, Cat did tip its hand even in 2007. A May 23, 2007, article carried this ominous statement: “Although Caterpillar Inc. owns 35 percent of Firefly, it wasn’t clear Tuesday why it wouldn’t guarantee the loan.”

“The Firefly package was being worked on for a number of weeks between Firefly, the county and the city,” Ardis wrote in an e-mail. “The proposal went through various stages and changed a number of times. It would have been difficult to update people on financial discussions when they were fluid and evolving into what was the final proposal. Once made public, there wasn’t anything hard to understand about the deal.” –Mayor Jim Ardis, quoted in “Word on the Street,” Peoria Journal Star, May 28, 2007

This was Ardis’s defense of “dropping the deal late on the public — [and] his council colleagues — and pushing the vote” with very little deliberation and without any policy discussion. The whole article is interesting. It recounts the story of how former Mayor Dick Carver was in town to talk to the City Council about the Kellar Branch rail-to-trail initiative, and during his stay here, he set up a meeting between Mayor Ardis, Rep. David Leitch, and president of G&D Integrated Joe O’Neill. They met at Le Peep restaurant for breakfast, and, “Over toast, these four men toasted a commitment to finding a solution that would keep Firefly Energy Inc. in Peoria.” Firefly moved into the former Foster & Gallagher building on Galena Road — a building owned by O’Neill’s company — and “O’Neill also hopes his Morton firm will eventually secure contracts with Firefly to build the high-tech core components that would then be shipped to battery plants in Missouri and Ohio,” the paper reported at the time. Leitch was a VP at National City at the time, the bank that provided the loan to Firefly.

“Ultimately, this is new ground for Peoria County.” –Peoria County Administrator Patrick Urich, quoted in Journal Star, June 1, 2007

The news article added, “But he [Urich] told the committees it was a worthwhile investment because the company has promised to keep its headquarters here and may manufacture in Peoria its high-tech components, parts that would then be shipped to battery plants in Missouri and Ohio.”

“I see it as one of the safest loans that we could make. If I had the money, I’d make it myself.” –County Board Chairman Bill Prather, quoted in Journal Star, June 10, 2007

If it were really that safe, why did National City require the City and County to guarantee the loan? If it were really that safe, why didn’t Caterpillar guarantee the loan? Well, now we know.

“I’m happy to be doing what I can to get them these defense dollars. In the end, I want them in Peoria. That’s going to be the icing on the cake for us.” Then-Congressman Ray LaHood, quoted in the Journal Star, June 10, 2007.

LaHood helped Firefly get millions in defense contracts. Icing on the cake? What cake?

“This is the highest and best use of this money that we have.” –Peoria County Board member Allen Mayer, quoted in the Journal Star, June 15, 2007

Note to future board candidates: Mark this quote for your campaign literature.

Before someone else says it, I concede that hindsight is 20/20. But I’m more concerned about another proverb: Those who don’t learn from history are doomed to repeat it. Will our elected officials take this very hard and expensive lesson to heart and stop using taxpayer money for risky private ventures?

City of Peoria, Peoria County

Firefly closes, taxpayers left holding the bag

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In May-June 2007, the City of Peoria and Peoria County pledged a combined total of $6.6 million as a guarantee for a loan from National City Bank to Firefly Energy, the darling Caterpillar spin-off and “poster child” of PeoriaNext. The source of the funds breaks down to $3.3 million in utility tax revenues from the City, $1 million in Keystone revenue and $2.3 million in Personal Property Replacement Tax Revenue from the County.

Today, WEEK-TV reports that Firefly is closing down its operations and filing for Chapter 7 bankruptcy. That’s not like Chapters 11 or 13 where they reorganize. Chapter 7 means they’re kaput and they will be liquidating their assets, and that means taxpayers are on the hook.

[Firefly’s CEO Ed] Williams said, “After 15 months of unsuccessful attempts to raise $20 million in equity capital, in the midst of this world-wide financial crisis, funds that would have enabled the Company’s transition to full production and commercial sales, the Firefly Energy Board has decided to cease operations and voluntarily file for Chapter 7 bankruptcy.”

So, what happens to the taxpayers? The City and County released the following joint statement:

In May 2007, following the significant investment of the private sector and the state and federal governments, the City and County of Peoria unanimously joined in a community partnership to guarantee a $6 million loan to Firefly Energy, Inc. by PNC National City Bank. Unfortunately, after 3 years of extensive efforts to make a commercially-viable alternative to the traditional lead-acid battery, Firefly has not been successful. Along with our state and federal partners, the City and County did everything we could to help Firefly succeed and bring technology-centered, specialized manufacturing jobs to Peoria. It has long been a goal of both private sector and government in the Peoria area to take ideas spun off from Caterpillar to create jobs and commerce in the Peoria area.

As guarantors, the City and County are determined to exercise their full legal rights to protect their interests. In the worst case, the City and County might lose their $6 million guarantee. In the likely case, the governments will pursue by legal means the pledged collateral, the physical and intellectual assets of Firefly Energy, Inc., to reduce any investment losses that may be realized by the City and County. We believe that the value of these assets is considerable and will reduce any amounts that may need to be paid by the City and County as guarantors. Furthermore, we expect that the lender PNC National City will fulfill its legal obligation under the loan agreement to protect the interests of the guarantors and maximize the value of the collateral. Again, the City and County intend to exercise their full legal rights to protect the interest of the tax payers of the City and County of Peoria.

Not to be nit-picky, but the guarantee was for $6.6 million — $6 million for the loan, and $600,000 to cover accrued interest. Regardless, the bottom line is that it’s going to cost taxpayers. Four million dollars of the loan was to be used for equipment, and the rest for working capital. So it looks like we will be on the hook for a sizable chunk.

I love how they are saying they intend to “protect the interest of the tax payers.” You know what would have really protected us? Not guaranteeing a $6 million loan for a risky start-up business in the first place.

Not quoted anywhere is Rep. David Leitch, the former VP at National City who is credited with orchestrating the public-private partnership. He was quoted in the Journal Star back in 2007 as saying this deal was “the most exciting thing Peoria had done since building the Civic Center.” But my favorite quote was what he said after the City approved its half of the guarantee: “This will be a moment we can all look back on and say, ‘Wow.'”

Well, he was right about that. $6.6 million potentially down the drain. Wow.